Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153574
Authors: 
Bolt, Wilko
Schmiedel, Heiko
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 1140
Abstract: 
This paper analyzes the welfare implications of creating a Single Euro Payments Area. We study the effects of increased network compatibility and payment scale economies on consumer and merchant card fees and its impact on card usage. In particular, we model competition among debit cards and between debit and credit cards. We show that competitive pressures dampen merchant fees and increase total card acceptance. The paper argues that there is room for multilateral interchange fee arrangements to achieve optimal consumer and merchant fees, taking safety, income uncertainty, default risk, merchant's pricing power, and the avoided cost of cash at the retailers side into account. Consumers and merchants are likely to benefit the most from the creation of SEPA when sufficient payment card competition alleviates potential monopolistic tendencies.
Subjects: 
card network competition
economic welfare
Optimal pricing
SEPA
JEL: 
L11
G21
D53
Document Type: 
Working Paper

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