Payment Systems and Interchange FeesRichard Schmalensee
NBER Working Paper No. 8256 In a typical bank credit card transaction, the merchant's bank pays an interchange fee, collectively determined by all participating banks, to the cardholder's bank. This paper shows how the interchange fee balances charges between cardholders and merchants under imperfect competition. The privately optimal fee depends mainly on differences between cardholders' and merchants' banks, not their collective market power. In a non-extreme case, the profit-maximizing interchange fee also maximizes total output and producers' plus consumers' surplus. There is no economic basis for favoring proprietary payment systems, which do not need interchange fees to balance charges, over the cooperative bank card systems.
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Machine-readable bibliographic record - MARC, RIS, BibTeX Published: Schmalensee, Richard. "Payment Systems And Interchange Fees," Journal of Industrial Economics, 2002, v50(2,Jun), 103-122. Users who downloaded this paper also downloaded these:
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