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Rochet, Jean-Charles
Wright, Julian
Year of Publication: 
Series/Report no.: 
ECB Working Paper 1138
We build a model of credit card pricing that explicitly takes into account credit functionality. We show that a monopoly card network always selects an interchange fee that exceeds the level that maximizes consumer surplus. If regulators only care about consumer surplus, a conservative regulatory approach is to cap interchange fees based on retailers’ net avoided costs from not having to provide credit themselves. In the model, this always raises consumer surplus compared to the unregulated outcome, sometimes to the point of maximizing consumer surplus.
credit card networks
credit card pricing
interchange fees
Document Type: 
Working Paper

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