Cooperation among Competitors: Some Economics of Payment Card Associations
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.
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If serving consumers and merchants is perfectly competitive, then the interchange fee does not affect the profits of the member banks.
“However, as Rochet and Tirole (2002) point out, if serving consumers and merchants is perfectly competitive, then the interchange fee does not affect the profits of the member banks.”
From The Economics of Two-Sided Markets (2009) · cites this paper as Rochet and Tirole (2002)
If there is no antitrust violation in setting interchange fees but the equilibrium outcome diverges from the social optimum, then price regulation may be a reasonable solution.
“If there is no antitrust violation in setting interchange fees but the equilibrium outcome diverges from the social optimum (as in Rochet and Tirole, 2002), then price regulation may be a reasonable solution.”
From The Economics of Two-Sided Markets (2009) · cites this paper as Rochet and Tirole, 2002
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- Authors
- Rochet, J.-C., & Tirole, J.
- Affiliations
- Toulouse School of Economics (FR)
- ORCID
- Rochet, Jean-Charles
- Venue
- The RAND Journal of Economics
- Publisher
- Wiley
- Published
- 2002
- Volume
- 33
- Issue
- 4
- Pages
- 549
- ISSN
- 0741-6261 (ISSN-L)
- OpenAlex
- W2025987251
- Cited by
- 659
- References
- 0
- Citations by year
- 2026: 9 · 2025: 13 · 2024: 18 · 2023: 22 · 2022: 17 · 2021: 28 · 2020: 22 · 2019: 23 · 2018: 32 · 2017: 23 · 2016: 23 · 2015: 20 · 2014: 54 · 2013: 32 · 2012: 39
- FWCI
- 96.86
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The RAND Journal of Economics (publishedVersion)
- Toulouse 1 Capitole Publications (Université Toulouse I Capitole) (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Keywords
- interchange fees, two-sided markets, network effects, access charges, market power, cooperative business models, system competition, payment card adoption
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