Platform Competition With Cash-back Rebates Under No Surcharge Rules

Marius Schwartz and Daniel Vincent

Working Papers from Georgetown University, Department of Economics

Abstract: We analyze competing strategic platforms setting fees to a local monopolist merchant and cash-back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival’s spread. This incentive yields non-existence of pure strategy equilibrium in many natural environments. In some circumstances, there is a mixed strategy equilibrium where platforms choose fee structures that induce the merchant to accept only one platform with equal probability, a form of monopolistic market allocation.

Keywords: Platform price competition; rebates; no surcharge; payment networks; credit cards. (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 L42 (search for similar items in EconPapers)
Pages: 39
Date: 2019-06-11
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://mariusschwartz.com/Home/documents/CompetingPlatformsWP6_11_2019.pdf Full text (application/pdf)
None

Related works:
Journal Article: Platform Competition With Cash‐Back Rebates Under No Surcharge Rules (2020)
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:geo:guwopa:gueconwpa~19-19-03

Ordering information: This working paper can be ordered from
Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
http://econ.georgetown.edu/

Access Statistics for this paper

More papers in Working Papers from Georgetown University, Department of Economics Georgetown University Department of Economics Washington, DC 20057-1036.
Bibliographic data for series maintained by Marcia Suss ( this e-mail address is bad, please contact ).