A Genuine Commercial Justification for Interchange Fees

10 Pages Posted: 19 Mar 2018

See all articles by Chris Berg

Chris Berg

RMIT University - School of Economics, Finance and Marketing

Sinclair Davidson

RMIT University - School of Economics, Finance and Marketing

Jason Potts

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)

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Sinclair Davidson

RMIT University - School of Economics, Finance and Marketing ( email )

445 Swanston Street
Melbourne, Victoria 3000
Australia
+61-3-9925-5869 (Phone)
+61-3-9925-5986 (Fax)

Jason Potts

RMIT University ( email )

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