publication . Preprint . Article . 2002

Plastic Clashes: Competition Among Closed and Open Payment Systems

Fabio M. Manenti; Ernesto Somma;
Open Access
  • Published: 06 Nov 2002
This paper analyses market competition between two different types of payment schemes: card associations and proprietary systems. The main focus is on the role of the collective setting of the interchange fee by members of the association. We describe the sterilising role of the interchange fee: when the interchange fee is set so as to maximise the sum of issuers' and acquirers' profits, the equilibrium values of platforms' profits, of the sum of the fees charged by each platform and their market shares are independent of the competitive conditions within the associated members on the two sides of the market and are affected by the strength of inter-platform com...
free text keywords: two-sided markets, network externalities, credit cards, interchange fee, jel:G21, jel:L13, jel:L31, jel:L42

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Proof. of Proposition 4. From (19) and (20), ¼2 (a = aopt) > ¼2(a = 0) if

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