Regulating Two-Sided Markets: An Empirical Investigation

57 Pages Posted: 24 Nov 2009 Last revised: 22 Apr 2010

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Sujit Chakravorti

Independent

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Multiple version iconThere are 2 versions of this paper

Date Written: November 19, 2009

Abstract

We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank-level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant acceptance being far from complete at the beginning and during the implementation of interchange fee ceilings. In addition, there is most likely a threshold interchange fee below which social welfare decreases although our data currently does not allow us to quantify it.

Keywords: Payment Choice, Merchant Adoption

JEL Classification: L11, G21, D53

Suggested Citation

Carbo-Valverde, Santiago and Chakravorti, Sujit and Rodriguez-Fernandez, Francisco, Regulating Two-Sided Markets: An Empirical Investigation (November 19, 2009). FRB of Chicago Working Paper No. 2009-11. Available at SSRN: https://ssrn.com/abstract=1511809 or http://dx.doi.org/10.2139/ssrn.1511809

Santiago Carbo-Valverde

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

Sujit Chakravorti (Contact Author)

Independent ( email )

No Address Available

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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