Credit card interchange fees

Authors/Editors

Research Areas

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Publication Details

Output type: Journal article

Author list: Rochet JC, Wright J

Publisher: Elsevier

Publication year: 2010

Journal: Journal of Banking and Finance (0378-4266)

Volume number: 34

Issue number: 8

Start page: 1788

End page: 1797

Number of pages: 10

ISSN: 0378-4266

Languages: English-Great Britain (EN-GB)

Unpaywall Data

Open access status: green

Full text URL: https://www.econstor.eu/bitstream/10419/153572/1/ecbwp1138.pdf

Abstract

We build a model of credit card pricing that explicitly takes into account credit functionality. In the model a monopoly card network always selects an interchange fee that exceeds the level that maximizes consumer surplus. If regulators only care about consumer surplus, a conservative regulatory approach is to cap interchange fees based on retailers' net avoided costs from not having to provide credit themselves. This always raises consumer surplus compared to the unregulated outcome, sometimes to the point of maximizing consumer surplus. (C) 2010 Elsevier B.V. All rights reserved.

Keywords

Credit cards, Payments, Two-sided markets

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