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Fraud, Investments and Liability Regimes in Payment Platforms

Anna Creti and Marianne Verdier

No 2011-31, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: In this paper, we discuss how fraud liability regimes impact the price structure that is chosen by a monopolistic payment platform, in a setting where merchants can invest in fraud detection technologies. We show that liability allocation rules distort the price structure charged by platforms or banks to consumers and merchants with respect to a case where such a responsibility regime is not implemented. We determine the allocation of fraud losses between the payment platform and the merchants that maximises the platform's profit and we compare it to the allocation that maximises social welfare.

Keywords: payment card systems; interchange fees; two-sided markets; fraud; liability (search for similar items in EconPapers)
JEL-codes: G21 L31 L42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-com
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2011-31

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