A Study of the Interrelated Bilateral Transactions in Credit Card Networks

FRB Chicago Policy Studies No. EPS-2001-2

41 Pages Posted: 21 Dec 2001

Date Written: July 2001

Abstract

Over the last decade, consumers have tripled their use of credit cards as more merchants have increased their acceptance of them. This increase suggests that incentives in today's marketplace favor greater credit card use by consumers and acceptance by merchants. In this paper, we study the set of interrelated bilateral transactions in credit card networks. First, we survey the recent theoretical papers using this approach and find that there is a lack of consensus regarding the optimal set of pricing policies. Second, we explore each of these interrelated transactions emphasizing common market practices and the underlying regulatory and legal framework. Third, we analyze the impact of certain credit card market practices on competing payment instruments such as debit cards.

Keywords: Credit cards, antitrust, interchange fee, merchant discount, payment systems

JEL Classification: D4, G2, L4

Suggested Citation

Chakravorti, Sujit and Shah, Alpa, A Study of the Interrelated Bilateral Transactions in Credit Card Networks (July 2001). FRB Chicago Policy Studies No. EPS-2001-2. Available at SSRN: https://ssrn.com/abstract=294510 or http://dx.doi.org/10.2139/ssrn.294510

Sujit Chakravorti (Contact Author)

Independent ( email )

No Address Available

Alpa Shah

J.P. Morgan Chase & Co. ( email )

60 Wall St.
New York, NY 10260
United States

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