Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70573
Authors: 
Carbó Valverde, Santiago
Chakravorti, Sujit
Rodriguez Fernandez, Francisco
Year of Publication: 
2010
Series/Report no.: 
Working Paper, Federal Reserve Bank of Chicago 2009-11
Abstract: 
Two-sided market theory predicts that platforms may subsidize the participation of one type of agent by extracting surplus from another type to internalize indirect network externalities. However, few empirical studies exist to evaluate the impact of government intervention in these markets. We use confidential bank-level data to study the impact of government-encouraged fee reductions for payment card services when merchant acceptance is not complete. We find that consumer and merchant welfare improved when the interchange fees, transfers among banks, were reduced. Furthermore, bank revenues increased because the increase in the number of transactions offset the decrease in the per-transaction revenue.
Subjects: 
payment choice
merchant adoption
network competition
JEL: 
L11
G21
D53
Document Type: 
Working Paper

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