Platform Competition with Cash‐Back Rebates Under No Surcharge Rules

30 Pages Posted: 10 Sep 2020

See all articles by Marius Schwartz

Marius Schwartz

Georgetown University - Department of Economics

Daniel Vincent

affiliation not provided to SSRN

Date Written: June 2020

Abstract

We analyze competing strategic platforms setting fees to a local monopolist merchant and cash‐back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival's spread. This incentive yields non‐existence of a pure strategy equilibrium in many natural environments. In some circumstances, a mixed strategy equilibrium exists where platforms choose fee structures that induce merchants to accept only one platform with equal probability, a form of monopolistic market allocation.

Suggested Citation

Schwartz, Marius and Vincent, Daniel, Platform Competition with Cash‐Back Rebates Under No Surcharge Rules (June 2020). The Journal of Industrial Economics, Vol. 68, Issue 2, pp. 298-327, 2020, Available at SSRN: https://ssrn.com/abstract=3689735 or http://dx.doi.org/10.1111/joie.12210

Marius Schwartz (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-678-6112 (Phone)

Daniel Vincent

affiliation not provided to SSRN

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