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Credit card interchange fees


Rochet, Jean-Charles; Wright, Julian (2010). Credit card interchange fees. Journal of Banking and Finance, 34(8):1788-1797.

Abstract

We build a model of credit card pricing that explicitly takes into account credit functionality. In the model a monopoly card network always selects an interchange fee that exceeds the level that maximizes consumer surplus. If regulators only care about consumer surplus, a conservative regulatory approach is to cap interchange fees based on retailers’ net avoided costs from not having to provide credit themselves. This always raises consumer surplus compared to the unregulated outcome, sometimes to the point of maximizing consumer surplus.

Abstract

We build a model of credit card pricing that explicitly takes into account credit functionality. In the model a monopoly card network always selects an interchange fee that exceeds the level that maximizes consumer surplus. If regulators only care about consumer surplus, a conservative regulatory approach is to cap interchange fees based on retailers’ net avoided costs from not having to provide credit themselves. This always raises consumer surplus compared to the unregulated outcome, sometimes to the point of maximizing consumer surplus.

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Citations

21 citations in Web of Science®
26 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2010
Deposited On:08 Dec 2010 16:04
Last Modified:05 Apr 2016 14:25
Publisher:Elsevier
ISSN:0378-4266
Publisher DOI:https://doi.org/10.1016/j.jbankfin.2010.02.026

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