Affordable Access

Access to the full text

Interchange Fees and Innovation in Payment Systems

Authors
  • Bourreau, Marc1
  • Verdier, Marianne2, 3
  • 1 Telecom ParisTech, Department of Economics and Social Sciences, Paris, France , Paris (France)
  • 2 Université Paris 2 Pantheon Assas, Centre de Recherches en Economie et Droit (CRED), Paris, France , Paris (France)
  • 3 MINES ParisTech, PSL - Research University, CERNA - Center for industrial economics, Paris, France , Paris (France)
Type
Published Article
Journal
Review of Industrial Organization
Publisher
Springer US
Publication Date
Jul 17, 2018
Volume
54
Issue
1
Pages
129–158
Identifiers
DOI: 10.1007/s11151-018-9648-6
Source
Springer Nature
Keywords
License
Yellow

Abstract

We analyze the impact of interchange fees on consumers’ and merchants’ incentives to adopt an innovative payment instrument, in a setting with adoption externalities between consumers and merchants. We show that consumer adoption decreases with the interchange fee for high degrees of externality, and varies non-monotonically with it for low degrees of externality. The profit-maximizing interchange fee coincides with the social optimum when externalities are strong, whereas it is too high when they are weak. We also compare the issuers’ incentives to innovate when they cooperate and when they make their innovation decisions independently.

Report this publication

Statistics

Seen <100 times