Imposing Choice under Ambiguity: The Case of Dynamic Currency Conversion

University of Zurich, Department of Economics, Working Paper No. 345, Revised version

38 Pages Posted: 2 Jun 2020 Last revised: 7 Jul 2020

See all articles by Christian Ewerhart

Christian Ewerhart

University of Zurich, Department of Economics

Sheng Li

University of Zurich - Department of Economics

Date Written: July 4, 2020

Abstract

It is a common experience for present-day consumers making an international payment via credit or debit card to be invited to choose the currency in which they wish to have the transaction executed. While this choice, made feasible by a technology known as dynamic currency conversion (DCC), seems to foster competition, we show that the opposite is the case. In fact, the unique pure-strategy Nash equilibrium in anatural fee-setting game turns out to be highly asymmetric, entailing fees for the service provider that always exceed the monopoly level. Although losses in welfare may be substantial, a regulatory solution is unlikely to come about due to a global free-rider problem.

Keywords: Dynamic currency conversion, payment cards, ambiguity aversion, price competition, monopoly, free-rider problem

JEL Classification: D21, G21, G28, G53

Suggested Citation

Ewerhart, Christian and Li, Sheng, Imposing Choice under Ambiguity: The Case of Dynamic Currency Conversion (July 4, 2020). University of Zurich, Department of Economics, Working Paper No. 345, Revised version, Available at SSRN: https://ssrn.com/abstract=3592449 or http://dx.doi.org/10.2139/ssrn.3592449

Christian Ewerhart (Contact Author)

University of Zurich, Department of Economics ( email )

Schoenberggasse 1
Zurich, CH-8001
Switzerland

Sheng Li

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
130
Abstract Views
798
rank
301,882
PlumX Metrics