Payment System Self-Regulation through Fee Caps

Griem Fabian ()
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Griem Fabian: Goethe University Frankfurt, Chair of Finance and Economics, Theodor-W.-Adorno-Platz 3, 60323Frankfurt am Main, Germany

Review of Network Economics, 2020, vol. 18, issue 3, 141-167

Abstract: This paper considers the organization of a single (domestic) payment system. When card issuers that are members of a payment system set their fees individually, this gives rise to a free-riding problem, as in providing access to different customers, card issuers are complements from the perspective of each merchant. When payment systems can threaten to exclude, in particular, card issuers with a smaller customer base that do not adhere to a common cap on fees, this allows to restore the full internalization outcome, leading to lower fees but higher profits and higher welfare. When payment systems cannot threaten to exclude card issuers, the full internalization outcome arises only when card issuers are sufficiently symmetric.

Keywords: payment systems; fee caps; antitrust (search for similar items in EconPapers)
JEL-codes: L11 L14 L40 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/rne-2020-0015

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