Underlying Incentives in Credit Card Networks
Posted: 29 Feb 2004
During the last decade, U.S. consumers 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 explore each of these interrelated transactions emphasizing common market practices and the underlying regulatory and legal framework. Second, we survey the recent theoretical papers using this approach and find that there is a lack of consensus regarding the optimal set of pricing decisions. Third, we discuss two recent antitrust cases against the two largest credit card associations.
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