Merchant Benefits and Public Policy towards Interchange: An Economic Assessment

Guerin-Calvert Margaret E. () and Ordover Janusz A.
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Guerin-Calvert Margaret E.: Competition Policy Associates, Inc.
Ordover Janusz A.: New York University; Competition Policy Associates, Inc.

Review of Network Economics, 2005, vol. 4, issue 4, 31

Abstract: We analyze the complex nature of interactions among participants in "two-sided" payments system markets, examine empirical evidence on benefits, especially merchant benefits, and re-assess the role of interchange in balancing interests and allocating costs between merchants and consumers. We conclude there are substantial potential harms to payments systems, consumers, and merchants from imposing cost-based regulation of interchange fees, particularly with network fixed costs. Competition policy, in our view, is the best prescription - through government intervention under the antitrust laws or private challenges to exclusionary strategies that hamper competition to the detriment of cardholders, merchants, and competing networks.

Date: 2005
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DOI: 10.2202/1446-9022.1083

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