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TOTM Thanks to all of our participants and readers for the blog symposium–both the posts and the comments were engaging and thoughtful, and I hope these . . .
Thanks to all of our participants and readers for the blog symposium–both the posts and the comments were engaging and thoughtful, and I hope these entries will be helpful in the ongoing debate over credit cards and interchange fees.
Read the full piece here.
ICLE Issue Brief A blog symposium hosted by Truth on the Market (www.truthonthemarket.com) and sponsored by the International Center for Law and Economics (www.laweconcenter.org).
A blog symposium hosted by Truth on the Market (www.truthonthemarket.com) and sponsored by the International Center for Law and Economics (www.laweconcenter.org).
TOTM I have now had a chance to review the excellent posts on the second day, all of which have a common flavor. They expand the . . .
I have now had a chance to review the excellent posts on the second day, all of which have a common flavor. They expand the universe of relative considerations that need to be taken into account to decide whether imposing caps on interchange fees enhances or reduces overall social welfare. The narrow perspective on this issue, which is difficult enough, is to master the dynamics of two-sided markets to figure out where the fixed costs of running the overall system should be allocated.
TOTM I take to heart Jim’s claim that fraud is too-little discussed in this realm given its cost, and thus I’ll try my hand at it. . . .
I take to heart Jim’s claim that fraud is too-little discussed in this realm given its cost, and thus I’ll try my hand at it.
Every discussion of the industrial organization of credit card networks owes a debt to Bill Baxter. Baxter, a law professor and former Assistant Attorney General in the Antitrust Division of the DOJ, was one of the first (maybe the first?) scholars to discuss the economics of two-sided markets, in a paper, as it happens, on the economics of interchange fees in credit card networks.
TOTM In our earlier post, we observed that the GAO report on interchange got off on the wrong foot when it concluded that interchange fees were . . .
In our earlier post, we observed that the GAO report on interchange got off on the wrong foot when it concluded that interchange fees were rising. We infer from the silence which greeted our post that everyone agrees with this criticism. Indeed, yesterday’s posts and comments appear to agree that the GAO’s report does very little to advance the discussion of interchange or the cost of electronic payment. But we suspect that greater disagreement lies just around the corner.
TOTM Most of the discussion related to pricing at the point of sale has emphasized the “cross-subsidy” between those that pay with cash and checks and . . .
Most of the discussion related to pricing at the point of sale has emphasized the “cross-subsidy” between those that pay with cash and checks and those that pay with credit cards. This discussion misses the core of the problem in a market where the use of cash and checks is rapidly declining; the central problem is the differential pricing of different card products. The reaction of the card networks to their “loss” in the debit-card and American Express litigation was to create two new product lines (Visa Signature and World MasterCard) that have unusually high interchange fees, 1-2% higher than typical Visa and MasterCard products. The rationale for these products from the network’s perspective is two-fold. First, the increased interchange revenues compensate for lowered interchange revenues on debit-card transactions. Second, issuers collect higher interchange revenues and thus would not shift their business out of Visa and MasterCard and toward American Express.
TOTM Will reduction in interchange fees help or hurt consumers? Two posts yesterday made the conjecture that a reduction in one category of fees would only . . .
Will reduction in interchange fees help or hurt consumers? Two posts yesterday made the conjecture that a reduction in one category of fees would only increase other fees, and that the overall sum of fees will not change. This is the fee-neutrality claim. Todd Zywicki writes…
TOTM The GAO has a fairly extensive discussion of the costs and benefits of credit cards to merchants. However, that discussion focuses on the individual benefits. . . .
The GAO has a fairly extensive discussion of the costs and benefits of credit cards to merchants. However, that discussion focuses on the individual benefits. I would like to step back and put two of those benefits – increased merchant sales and fraud prevention costs – into the larger context that I discussed earlier.
TOTM I feel that at least two important issues are being left out of the raging controversy over the cost of interchange. (At this point my . . .
I feel that at least two important issues are being left out of the raging controversy over the cost of interchange. (At this point my readers are probably deciding if I’ll follow with a pro-merchant or pro-bank POV…but guess what: here comes one of each to make my point that we’re being a bit simplistic in this debate!).
