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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31397
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| Title: | To Surcharge or Not To Surcharge? A Two-Sided Market Perspective of the
No-Surcharge Rule |
| Authors: | Economides, Nicholas
Henriques, David |
| Keywords: | Electronic Payment System, Market Power, Network Externalities,
No-Surcharge Rule, Regulation, Two-sided Markets, MasterCard, Visa,
American Express, Discover. |
| Issue Date: | 20-Dec-2011 |
| Series/Report no.: | NET Working Papers;11_03 |
| Abstract: | In Electronic Payment Networks (EPNs) the No-Surcharge Rule (NSR)
requires that merchants charge the same nal good price regardless of
the means of payment chosen by the customer. In this paper, we analyze a
three-party model (consumers, merchants, and proprietary EPNs) to assess
the impact of a NSR on the electronic payments system, in particular, on
competition among EPNs, network pricing to merchants and consumers, EPNs
pro ts, and social welfare. We show that imposing a NSR has a number of
e¤ects. First, it softens competition among EPNs and rebalances
the fee structure in favor of cardholders and to the detriment of
merchants. Second, we show that the NSR is a pro table strategy for EPNs
if and only if the network e¤ect from merchants to cardholders is
su¢ ciently weak. Third, the NSR is socially (un)desirable if the
network externalities from merchants to cardholders are su¢ ciently
weak (strong) and the merchants market power in the goods market is
su¢ ciently high (low). Our policy advice is that regulators should
decide on whether the NSR is appropriate on a market-by-market basis
instead of imposing a uniform regulation for all markets. |
| URI: | http://hdl.handle.net/2451/31397 |
| Appears in Collections: | NET Institute Working Papers Series
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Files in This Item:
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Size | Format |
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| 11_03.pdf | NET Institute Working Paper 11_03 | 388.78 kB | Adobe PDF | View/Open |
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