Who pays for credit cards?

Sujit Chakravorti and William Emmons

No EPS-2001-1, Occasional Paper; Emerging Payments from Federal Reserve Bank of Chicago

Abstract: We model side payments in a competitive credit-card market. If competitive retailers charge a single (higher) price to cover the cost of accepting cards, banks must subsidize convenience users to prevent them from defecting to merchants who do not accept cards. The side payments will be financed by card users who roll over balances at interest if their subjective discount rates are high enough. Despite the feasibility of cross subsidies among cardholders, price discrimination without side payments is Pareto preferred because of the costliness of the card network--unless banks have other motives, such as purchasing options on future borrowing by convenience users.

Keywords: Credit cards; Payment systems (search for similar items in EconPapers)
Date: 2001
New Economics Papers: this item is included in nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:fedhop:eps-2001-1

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Occasional Paper; Emerging Payments from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().