Pricing of payment cards, competition, and efficiency: a possible guide for SEPA

Wilko Bolt () and Heiko Schmiedel ()

Annals of Finance, 2013, vol. 9, issue 1, 5-25

Abstract: This paper analyzes equilibrium pricing of payment cards and welfare consequences of payment card competition. In particular, we model competition between debit and credit cards. The paper argues that optimal consumer and merchant fees must take safety, income uncertainty, default risk, and the merchant’s handling cost of cash into account. Market segmentation where debit and credit cards serve different merchant segments yields a preferred “payment mix”. However, when markets are segmented, payment card fees do not necessarily reach their socially efficient levels. Hence, thoughtful regulatory intervention regarding merchant fees may still be necessary to raise total surplus. Copyright Springer-Verlag 2013

Keywords: Payment card competition; Equilibrium pricing; Economic efficiency; L11; G21; D53 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10436-011-0177-7

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