The Impact of Price Controls in Two-sided Markets: Evidence from US Debit Card Interchange Fee Regulation

Mark D. Manuszak and Krzysztof Wozniak
Additional contact information
Mark D. Manuszak: https://www.federalreserve.gov/econres/mark-d-manuszak.htm

No 2017-074, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study the pricing of deposit accounts following a regulation that capped debit card interchange fees in the United States and provide the first empirical investigation of the link between interchange fees and granular deposit account prices. This link is broadly predicted by the theoretical literature on two-sided markets, but the nature and magnitude of price changes are key empirical issues. To examine the ways that banks adjusted their account prices in response to the regulatory cap on interchange fees, we exploit the cap's differential applicability across banks and account types, while accounting for equilibrium spillover effects on banks exempt from the cap. Our results show that banks subject to the cap raised checking account prices by decreasing the availability of free accounts, raising monthly fees, and increasing minimum balance requirements, with different adjustment across account types. We also find that banks exempt from the cap adjusted prices as a competitive response to price changes made by regulated banks. Not accounting for such competitive responses underestimates the policy's impact on the market, for both banks subject to the cap and those exempt from it.

Keywords: Equilibrium effects; Financial supervision and regulation; Interchange fees; Retail banking and debit cards; two-sided markets (search for similar items in EconPapers)
JEL-codes: G21 G28 L51 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2017-07-07
New Economics Papers: this item is included in nep-ban, nep-com, nep-mkt and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2017074pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-74

DOI: 10.17016/FEDS.2017.074

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().