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Platform Competition With Cash-back Rebates Under No Surcharge Rules

Marius Schwartz () and Daniel R. Vincent ()
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Marius Schwartz: Department of Economics, Georgetown University, http://econ.georgetown.edu/
Daniel R. Vincent: Department of Economics, University of Maryland

No gueconwpa~19-19-03, Working Papers from Georgetown University, Department of Economics

Abstract: We analyze competing strategic platforms setting fees to a local monopolist merchant and cash-back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival’s 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: L13 L41 L42 D43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-pay
Date: 2019-06-11
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Persistent link: https://EconPapers.repec.org/RePEc:geo:guwopa:gueconwpa~19-19-03

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