The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network

Marius Schwartz and Daniel Vincent

Review of Network Economics, 2006, vol. 5, issue 1, 31

Abstract: The No Surcharge Rule (NSR) prevents merchants from charging more to consumers who pay by card versus other means ("cash"). We consider a payment network facing local monopolist merchants that serve two consumer groups, card users and cash users. Unlike in prior work, transaction quantities are variable. The NSR raises network profit and harms cash users and merchants; overall welfare rises if and only if the ratio of cash to card users is sufficiently large. With the NSR, the network will grant rebates to card users whenever feasible. If rebates are not feasible, the NSR can harm even card users.

Date: 2006
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DOI: 10.2202/1446-9022.1090

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