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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Must-take cards: Merchant discounts and avoided costs
Organization Unit
  • Jean-Charles Rochet
  • Jean Tirole
Item Subtype Original Work
Refereed Yes
Status Published in final form
  • English
Journal Title Journal of the European Economic Association
Publisher Wiley-Blackwell
Geographical Reach international
ISSN 1542-4766
Volume 9
Number 3
Page Range 462 - 495
Date 2011
Abstract Text Antitrust authorities often argue that merchants cannot reasonably turn down payment cards and therefore must accept excessively high merchant discounts. The paper attempts to shed light on this must-take cards view from two angles. First, the paper gives some operational content to the notion of must-take card through the avoided-cost test or tourist test: would the merchant want to refuse a card payment when a non-repeat customer with enough cash in her pocket is about to pay at the cash register? It analyzes its relevance as an indicator of excessive interchange fees. Second, it identifies four key sources of potential social biases in the payment card systems' determination of interchange fees and compares the industry and social optima both in the short term (fixed number of issuers) and the long term (in which issuer offerings and entry respond to profitability).
Digital Object Identifier 10.1111/j.1542-4774.2011.01020.x
Other Identification Number merlin-id:4999
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