MUST-TAKE CARDS: MERCHANT DISCOUNTS AND AVOIDED COSTS

Authors / Editors

Research Areas

Publication Details

Output type: Journal article

Author list: Rochet JC, Tirole J

Publisher: Oxford University Press

Publication year: 2011

Journal: Journal of European Economic Association (1542-4766)

Volume number: 9

Issue number: 3

Start page: 462

End page: 495

Number of pages: 34

ISSN: 1542-4766

eISSN: 1542-4774

Languages: English-Great Britain (EN-GB)

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Unpaywall Data

Open access status: green

Full text URL: http://publications.ut-capitole.fr/937/1/rochet_937.pdf

Abstract

Antitrust authorities often argue that merchants cannot reasonably turn down payment cards and therefore must accept excessively high merchant discounts. The paper attempts to shed light on this must-take cards view from two angles. First, the paper gives some operational content to the notion of must-take card through the avoided-cost test or tourist test: would the merchant want to refuse a card payment when a non-repeat customer with enough cash in her pocket is about to pay at the cash register? It analyzes its relevance as an indicator of excessive interchange fees. Second, it identifies four key sources of potential social biases in the payment card systems' determination of interchange fees and compares the industry and social optima both in the short term (fixed number of issuers) and the long term (in which issuer offerings and entry respond to profitability).

Keywords

D490, E420, G280

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