Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/216846
Authors: 
Ewerhart, Christian
Li, Sheng
Year of Publication: 
2020
Series/Report no.: 
Working Paper 345
Abstract: 
It is a common experience for present-day consumers making an international payment via credit or debit card to be invited to choose the currency in which they wish to have the transaction executed. While this choice, made feasible by a technology known as dynamic currency conversion (DCC), seems to foster competition, we show that the opposite is the case. In fact, the unique pure-strategy Nash equilibrium in a natural fee-setting game turns out to be highly asymmetric, entailing fees for the service provider that always exceed the monopoly level. Although losses in welfare may be substantial, a regulatory solution is unlikely to come about due to a global free-rider problem.
Subjects: 
Dynamic currency conversion
payment cards
ambiguity aversion
price competition
monopoly
free-rider problem
JEL: 
D21
G21
G28
G53
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
417.84 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.