A Genuine Commercial Justification for Interchange Fees

10 Pages Posted: 19 Mar 2018

See all articles by Chris Berg

Chris Berg

Royal Melbourne Institute of Technolog (RMIT University)

Sinclair Davidson

RMIT University

Jason Potts

Royal Melbourne Institute of Technolog (RMIT University)

Date Written: March 17, 2018

Abstract

Ronald Coase famously argued that “if an economist finds something – a business practice of one sort or other – that he does not understand, he looks for a monopoly explanation”. So it is with credit card interchange fees. Intellectual confusion has led to the phenomenon of interchange fees being misdiagnosed as being a monopoly problem leading to inappropriate policy intervention. Following George Stigler’s path breaking analysis of the US Security and Exchange Commission he claimed that financial regulation was “founded upon prejudice and…reforms are directed by wishfulness”. In our opinion, Australian regulatory attitudes towards interchange fees should be placed into the same category: reforms initiated by ignorance and anti-bank prejudice.

Keywords: Interchange Fees, Payments System, Transaction Cost Economics

JEL Classification: L11, L14, L51

Suggested Citation

Berg, Chris and Davidson, Sinclair and Potts, Jason, A Genuine Commercial Justification for Interchange Fees (March 17, 2018). Available at SSRN: https://ssrn.com/abstract=3142944 or http://dx.doi.org/10.2139/ssrn.3142944

Chris Berg (Contact Author)

Royal Melbourne Institute of Technolog (RMIT University) ( email )

124 La Trobe Street
Melbourne, 3000
Australia

Sinclair Davidson

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000
Australia

Jason Potts

Royal Melbourne Institute of Technolog (RMIT University) ( email )

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