Credit and the No-Surcharge Rule
Federal Reserve Bank of Philadelphia
Federal Reserve Bank of Atlanta
FRB of Atlanta Working Paper No. 2006-25
A controversial aspect of payment cards has been the no-surcharge rule. This rule, which is part of the contract between the card provider and a merchant, states that the merchant cannot charge a customer who pays by card more than a customer who pays by cash. In this paper we consider the design of an optimal card-based payment system when cash is available as an alternative means of payment. We find that a version of the no-surcharge rule emerges as a natural and advantageous feature of such a system.
Number of Pages in PDF File: 36
Keywords: no surcharge, credit cards, payments, money, search
JEL Classification: D83, E42working papers series
Date posted: December 4, 2006
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