The Pricing of Payments

Krueger, Malte (2009): The Pricing of Payments.

Abstract

The pricing of payments has received increasing attention of regulators. In many cases, regulators are concerned that consumers do not face cost based prices. They argue that without cost based prices consumers will make inefficient choices. In this paper, it is argued that both, economics of scale and the particular laws governing pricing in two-sided markets provide a case against cost based pricing.

• Item Type: MPRA Paper
• Language: English
• Keywords: Two-sided markets, interchange fees, surcharging, pricing strategies
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships ; Contracts and Reputation ; Networks; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices

References

Baxter, W. F., 1983, ‘Bank Interchange of Transactional Paper: Legal Perspectives,’ Journal of Law and Economics, 26, pp. 541–588.

Bolt, Wilko, Nicole Jonker and Corry van Renselaar (2008): Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands, De Nederlandsche Bank.

Brits, Hans and Carlo Winder (2005) “Payments are no free lunch”, DNB Occasional Studies, Vol. 3, No.2.

Carlton, D. and A. Frankel (1995) "The Antitrust Economics of Credit Card Networks", Antitrust Law Journal, 63(3), 903-915.

De Nederlandsche Bank (DNB) (2004) “The cost of payments”, Quarterly Bulletin, March: 57-64.

DeGrauwe, P., L. Rinaldi and P. Van Cayseele (2006) “Towards a more efficient use of payment instruments,” mimeo, University of Leuven, March.

European Commission (2006) “Interim Report I, Payment cards”, Sector Inquiry under Article 17 Regulation 1/2003 on retail banking, 12 APRIL 2006.

European Commission (2007) “Commission decision of 19/XII/2007 relating to a proceeding under Article 81 of the Treaty and Article 53 of the EEA Agreement”, Provisional non-confidential version, Brussels. (MasterCard decision)

Frankel, Alan S. (2007) “Towards a Competitive Card Payments Marketplace”, Reserve Bank of Australia, Payments System Review Conference, 29 November 2007, Sydney.

Frankel, A.S. (1998) “Monopoly and Competition in the Supply and Exchange of Money” Antitrust Law Journal 66, 313-361.

Gans, J. and S. King (2003) "The Neutrality of Interchange Fees in Payment Systems", Topics in Economic Analysis and Policy, 3(1), Article 1.

Gresvik, Olaf and Grete Øwre (2002): Banks’ costs and income in the payment system in 2001, Economic Bulletin Q4, 125-133.

Gresvik, Olaf and Grete Øwre (2003): Costs and Income in the Norwegian Payment System 2001. An Application of the Activity Based Costing Framework, Norges Bank, Working Paper 2003/8, September.

IMA Market Development (2000): Study regarding the Effects of the Abolition of the Nondiscrimination Rule in Sweden for European Commission Competition Directorate General, IMA Market Development AB, 29.2.2000.

ITM Research (2000): The abolition of the no discrimination rule, survey conducted on behalf of the European Commission’s (EC) Directorate General Competition, Amsterdam.

Jyrkönen, Hanna and Heli Paunonen (2003): Card, Internet and mobile payments in Finland, Bank of Finland Discussion Papers, 8-2003, 11-12.

Krueger, Malte (2008): “Cash – the familiar stranger”, European Card Review, September/October 2008, 30-32.

Krueger, Malte and Christoph Strauch (2008) „Die Kommission und die Interchange: Falsche Prämissen?“ cardsKartencartes, No. 3, August, 25-29.

Labak, Alexander (2005): SEPA: The Future Beyond Cash - Europe’s Debit Alternative, Speech to Delegates of Fourth Annual MasterCard Debit Conference, Geneva, March 10, 2005.

McAndrews, James and Zhu Wang (2007) Microfoundations of two-sided markets: The payment card example, DNB Working Paper 128/2007.

National Forum on the Payments System (2004) The Costs of Payments. Survey on the Costs Involved in POS Payment Products, Working Group on Costs of POS Payment Products, March 2004.

National Forum on the Payments System (2004): The Costs of Payments. Survey on the Costs Involved in POS Payment Products, Working Group on Costs of POS Payment Products, March 2004.

Pfleiderer, O. and H. Schieber (1988) Die Zentralnotenbank. In Norbert Kloten and Johann Heinrich von Stein (eds), Obst/Hintner Geld-, Bank- und Börsenwesen. Stuttgart: Poeschel Verlag, 164-179.

Rochet, J.C. (2007) “Competing Payment Systems: Key Insights from the Academic Literature”, Paper prepared for the Payments System Review Conference organized by the Reserve Bank of Australia and the Centre for Business and Public Policy, Melbourne Business School, Sydney, 29 November 2007.

Rochet, J.-C. and J. Tirole (2003) “Platform Competition in Two-Sided Markets,” Journal of the European Economic Association, 1: 990-1029.

Roson, R. (2005) ”Two-Sided Markets: A Tentative Survey”, Review of Network Economics, 4(2): 142-160.

Tumpel-Gugerell, Gertrude (2006) A SEPA for cards: a contribution to a cashless society? Speech by Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB, EFMA Cards and Payments Conference, Paris, 20 September 2006.

Van Hove, Leo (2007) Central Banks and Payment Instruments: a Serious Case of Schizophrenia, Communications & Strategies, no. 66, 2nd quarter, p. 16-44.

Wright, J. (2004) "One-Sided Logic in Two-Sided Markets", Review of Network Economics, 3, 1: 44-64.