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Payment Card Interchange Fees and Price Discrimination
Author(s) -
Ding Rong,
Wright Julian
Publication year - 2017
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12120
Subject(s) - payment card , payment , context (archaeology) , atm card , business , price discrimination , commission , payment processor , set (abstract data type) , smart card , card security code , credit card , commerce , advertising , computer security , computer science , marketing , finance , paleontology , biology , programming language
We consider the implications of platform price discrimination in the context of card platforms. Despite the platform's ability to price discriminate, we show that it will set fees for card usage that are too low, resulting in excessive usage of cards. We show this bias remains even if card fees (or rewards) can be conditioned on each type of retailer that the cardholder transacts with. We use our model to consider the European Commission's objection to the rules card platforms have used to sustain differential interchange fees across European countries.