Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/275657 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 345
Version Description: 
This version: May 2023
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
Over the course of the past two decades, it has become a common experience for consumers authorizing an international transaction via credit card to be invited to choose the currency in which they wish the transaction to be executed. While this choice, made feasible by a technology known as dynamic currency conversion (DCC), seems to foster competition, we argue that the opposite is the case. In fact, the unique pure-strategy equilibrium in a natural fee-setting game, with uninformed and possibly inattentive consumers, turns out to be highly asymmetric, entailing fees for the service provider that persistently 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
Credit cards
Price competition
Monopoly
Free-rider problem
Rational inattention
JEL: 
D21
G21
G28
G53
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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