Elimination of Competitors: Some Economics of Payment Card Associations

Koki Arai

ISER Discussion Paper from Institute of Social and Economic Research, Osaka University

Abstract: This paper analyzes platforms and rejections in two-sided markets with network externalities, using the specific context of a payment card association. We study the cooperative antitrust determination of the interchange fee by member banks. We use a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card developed by Rochet and Tirole (2002). After drawing the welfare implications of a cooperative determination of the interchange fee and antitrust conducts, we describe in detail the factors affecting merchant resistance, compare cooperative and for-profit business models, and make a first cut in the analysis of system competition.

Date: 2004-07
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Working Paper: Elimination of Competitors: Some Economics of Payment Card Associations (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:0612

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