Abstract:
This paper presents a model of competing payment schemes. Unlike previous work on
generic twosided markets, the model allows for the fact that in a payment system one
type of user (merchants) competes to attract users on the other side of the market
(consumers who may use cards for purchases). It analyzes how competition between
card associations affects the choice of interchange fees, and thus the structure of
fees charged to cardholders and merchants. Implications of the analysis for the
competitive neutrality, or otherwise, of proposals to regulate interchange fees are
discussed.