Platform Competition With User Rebates Under No Surcharge Rules

Marius Schwartz and Daniel Vincent

Working Papers from Georgetown University, Department of Economics

Abstract: We analyze competing strategic platforms setting fees to a local monopo- list merchant and rebates to end users, when the merchant is prevented from surcharging platforms customers, as frequently occurs with credit cards. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rivalÕs spread. This incentive yields non-existence of pure strategy equilibrium in many natural environments. In some circumstances, there is a mixed strategy equilibrium where platforms choose fee structures that induce the merchant to accept only one platform with equal probability, a form of monopolistic market allocation.

Keywords: Platform price competition; rebates; no surcharge; payment networks; credit cards. (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 L42 (search for similar items in EconPapers)
Pages: 36
Date: 2011-11-12
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Persistent link: https://EconPapers.repec.org/RePEc:geo:guwopa:gueconwpa~17-17-07

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