Single euro payment area (SEPA) and banking industry: discriminatory pricing vs. non-discriminatory pricing

Bita Shabgard ()
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Bita Shabgard: Universitat Autonoma de Barcelona (UAB)

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2021, vol. 48, issue 3, No 3, 355-383

Abstract: Abstract The single euro payments area (SEPA) project eliminates the incompatibility between domestic payment systems across European countries. It also enforces uniform pricing between national and international transactions. How does this policy affect competition among European banks in the retail payment market? To address this question, we explore and solve a model of non-linear price competition between two asymmetric banks in terms of transactional capital by considering price discrimination in pre-SEPA and uniform pricing in post-SEPA, under presence of economies of scale. Our results show that the transaction pattern plays an important role in the effect of SEPA on competition between banks; Competition is less intense in post-SEPA when the transaction pattern is domestically oriented. Moreover, comparison of pre-SEPA with post-SEPA phases suggests that SEPA intensifies competition when economies of scale are large enough. We further show that consumer surplus improves in post-SEPA but the effect of SEPA on welfare depends on fixed adjustment cost.

Keywords: SEPA project; Banking industry; Non-linear pricing (search for similar items in EconPapers)
JEL-codes: G20 L11 L50 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40812-021-00183-0

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