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| Author: | Rochet, J. Tirole, J. |
| Title: | Must-take cards: merchant discounts and avoided costs |
| Journal: | Journal of the European Economic Association
2011 : JUN, VOL. 9:3, p. 462-495 |
| Index terms: | payment systems profitability costs consumers retailing |
| Language: | eng |
| Abstract: | Antitrust authorities often claim that merchants cannot reasonably turn down payment cards and thus must accept excessively high merchant discounts. The paper attempts to shed light on this must-take cards issue from two angles. First, some operational content are given to the notion of must-take card through the avoided-cost test or tourist test: would the merchant prefer to refuse a card payment when a non-repeat customer with a sufficient amount of cash in her pocket is paying at the cash register? its relevance is analyzed as an indicator of excessive interchange fees. Second, four key sources of potential social biases in the payment card systems' determination of interchange fees are identified and the industry and social optima are compared both in the short term (fixed number of issuers) and the long term (where issuer offerings and entry result from profitability). |
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