Cooperation among competitors: Some economics of payment card associations

Jean Charles Rochet*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    271 Scopus citations

    Abstract

    We analyze platforms in two-sided markets with network externalities, using the specific context of a payment card association. We study the cooperative determination of the interchange fee by member banks. The interchange fee is the "access charge" paid by the merchants' banks (the acquirers) to cardholders' banks (the issuers). We develop a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card. After drawing the welfare implications of a cooperative determination of the interchange fee, we describe in detail the factors affecting merchant resistance, compare cooperative and for-profit business models, and make a first cut in the analysis of system competition.

    Original languageEnglish (US)
    Pages (from-to)549-570
    Number of pages22
    JournalRAND Journal of Economics
    Volume33
    Issue number4
    DOIs
    StatePublished - 2002

    ASJC Scopus subject areas

    • Economics and Econometrics

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