The Determinants of Optimal Interchange Fees in Payment Systems

Julian Wright

No 176, Working Papers from Department of Economics, The University of Auckland

Abstract: A fundamental aspect of any open payment system is the interchange fee that is paid from the merchant's bank to the cardholder's bank. Using a model in which there is partial participation by heterogeneous consumers and merchants, this paper characterizes the output maximizing, profit maximizing and welfare maximizing level of such an interchange fee. It examines how the optimal level of the fee depends on costs, profits margins, pass-through coefficients, participation rates, and membership fees, as well as two different strategic effects arising from competition between merchants. It also determines the factors which drive deviations between the output maximizing, profit maximizing, and welfare maximizing interchange fees.

Keywords: Economics (search for similar items in EconPapers)
Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/2292/176

Related works:
Journal Article: The Determinants of Optimal Interchange Fees in Payment Systems (2004)
Working Paper: The Determinants of Optimal Interchange Fees in Payment Systems (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:auc:wpaper:176

Access Statistics for this paper

More papers in Working Papers from Department of Economics, The University of Auckland Contact information at EDIRC.
Bibliographic data for series maintained by Library Digital Development ().