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  home > latest issue > Abstract: Merchant Benefits and Public Policy towards Interchange: An Economic Assessment

Abstract

Merchant Benefits and Public Policy towards Interchange: An Economic Assessment

The Review of Network Economics

Vol. 4, Issue 4 - December 2005, pp 384 - 414



Author's
  Margaret E. Guerin-Calvert
President and Managing Director, Competition Policy Associates, Inc.
E-mail: [email protected]

Janusz A. Ordover.
Professor of Economics, New York University and Director, Competition Policy Associates, Inc.

Abstract
  We analyze the complex nature of interactions among participants in "two-sided" payments system markets, examine empirical evidence on benefits, especially merchant benefits, and re-assess the role of interchange in balancing interests and allocating costs between merchants and consumers. We conclude there are substantial potential harms to payments systems, consumers, and merchants from imposing cost-based regulation of interchange fees, particularly with network fixed costs. Competition policy, in our view, is the best prescription - through government intervention under the antitrust laws or private challenges to exclusionary strategies that hamper competition to the detriment of cardholders, merchants, and competing networks.

Keywords: Credit cards, Interchange fees, Welfare

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