Price cap regulation in a two-sided market: Intended and unintended consequences

• Autores: Zhu Wang
• Localización: International journal of industrial organization, ISSN 0167-7187, Vol. 45, Nº. 0, 2016, págs. 28-37
• Idioma: inglés
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• Resumen

  • Abstract This paper studies intended and unintended consequences of price cap regulation in the two-sided payment card market. The recent U.S. debit card regulation was intended to lower merchants' card acceptance costs by capping interchange fees at the issuer cost, but for small-ticket transactions the interchange fee instead rose post-regulation. To address the puzzle, I construct a two-sided market model and show that card demand externalities between large-ticket and small-ticket transactions rationalize card networks' pricing response. Based on the model, I provide a welfare assessment of the issuer cost-based interchange regulation and discuss alternative regulatory approaches.