The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network

Schwartz, Marius; Vincent, D

doi:10.2202/1446-9022.1090

Cited by 58 publications

(48 citation statements)

References 13 publications

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“…Katz (2001), Schmalensee (2002) and Rochet and Tirole (2002). But such fees (especially together with rules against surcharges on card purchases) may raise prices to non-card customers (Schwartz andVincent 2006, Farrell 2006). David (1985) argued that the QWERTY typewriter keyboard became dominant through \historical small events."…”

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confidence: 99%

Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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PRELIMINARY DRAFT: PLEASE SEND COMMENTSKEYWORDS: switching costs, network e ects, lock-in, network externalities, co-ordination, indirect network e ects JEL CLASSIFICATIONS: L130 market structure, rm strategy and market performance: oligopoly and other imperfect markets; monopolistic competition; contestable markets L150 information and product quality; standardization and compatibility L120 market structure, rm strategy and market performance: monopoly L140 transactional relationships: contracts and reputation: networks D430 market structure and pricing: oligopoly and other forms of market imperfection D420 market structure and pricing: monopoly. ACKNOWLEDGMENTS: We're grateful to many friends and colleagues for numerous helpful suggestions and comments over several substantial rewrites of this paper since our rst 1997 draft. Special thanks are due to Alan Beggs, Simon AbstractSwitching costs and network e ects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in e ciency, and gives vendors lucrative ex post market power|over the same buyer in the case of switching costs (or brand loyalty), or over others with network e ects.Firms compete ex ante for this ex post power, using penetration pricing, introductory o ers, and price wars. Such \competition for the market" or \life-cycle competition" can adequately replace ordinary compatible competition, and can even be ercer than compatible competition by weakening di erentiation. More often, however, incompatible competition not only involves direct e ciency losses but also softens competition and magni es incumbency advantages. With network e ects, established rms have little incentive to o er better deals when buyers' and complementors' expectations hinge on non-e ciency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive o ers and random events, it later \tips" to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another's existing customers, and so also discourage more aggressive entry.Because of these competitive e ects, even ine cient incompatible competition is often more pro table than compatible competition, especially for dominant rms with installed-base or expectational advantages. Thus rms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.

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confidence: 99%

Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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“…Our results are stronger than the findings of these previous works: We demonstrate the possibility that consumer surplus and welfare are actually lowered by the existence of a card system. We also explore the welfare implications of imposing price coherence, an issue which has only previously been considered in Wright (2003) and Schwartz and Vincent (2006), settings in which merchant internalization was assumed away. Finally, our results occur in a simpler and more generic setting.…”

Section: A1 Travel Booking Networkmentioning

confidence: 99%

Price Coherence and Adverse Intermediation

Edelman

Wright

2013

SSRN Journal

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Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary's technology. We develop a model to show that the intermediary will want to restrict sellers from charging buyers more for transactions it intermediates. We show that this restriction can reduce consumer surplus and welfare, sometimes to such an extent that the existence of the intermediary can be harmful. Specifically, lower consumer surplus and welfare result from inflated retail prices, over-investment in providing benefits to buyers, and excessive adoption of the intermediaries' services. Competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise. We show similar results arise when intermediaries provide matching benefits, namely recommendations of sellers to buy from. We discuss applications to travel reservation systems, payment card systems, marketplaces, rebate services, search engine advertising, and various types of brokers and agencies.JEL classification: D40, L11

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“…Even when abstracting from the additional "bank level" intermediation, the studies on no-surcharge rules show certain limitations that restrict applicability on the cases mentioned in the introduction. In contrast to the studies of Wright (2003) and Schwartz and Vincent (2006), my framework allows for imperfect merchant competition and accounts for the spillover effect whose presence seems reasonable in a multi-channel sales framework 40 and impacts both specialization incentives and price levels.…”

Section: Concluding Remarks and Outlookmentioning

confidence: 99%

Intermediated vs. Direct Sales and a No-Discrimination Rule

Wismer

2013

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWhen sellers join a platform to sell their products, the platform operator may restrict their strategic decisions. In fact, several platform operators impose most-favored treatment or no-discrimination rules (NDRs), asking sellers not to offer better sales conditions elsewhere.In this paper, I analyze a model that allows for an endogenous split-up of consumers between sales channels. Competing sellers might set different prices across channels, depending on the platform tariff and presence of a NDR. I find that the platform operator imposes a NDR if he faces high transaction costs, if seller competition is weak, and if the initial distribution of consumers on channels is strongly skewed. Prohibiting NDRs can have both positive and negative effects on welfare.

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The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network

Cited by 58 publications

References 13 publications

Coordination and Lock-In: Competition with Switching Costs and Network Effects

Coordination and Lock-In: Competition with Switching Costs and Network Effects

Price Coherence and Adverse Intermediation

Intermediated vs. Direct Sales and a No-Discrimination Rule

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