Payment Card Interchange Fees and Price Discrimination |
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Authors: | Rong Ding Julian Wright |
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Institution: | 1. Department of Economics, University of International Business and Economics, Beijing, China;2. Department of Economics, National University of Singapore, Singapore |
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Abstract: | 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. |
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