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Discussion Paper Details

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Title: Shrouded Transaction Costs

Author(s): Hélène Bourguignon, Renato Gomes and Jean Tirole

Publication Date: October 2014

Keyword(s): card surcharges, cash discounts, hold-ups in two-sided markets, missed sales and payment cards

Programme Area(s): Industrial Organization

Abstract: The proliferation of new payment methods on the Internet rekindles the old and unsettled debate about merchants? incentive and ability to differentiate price according to payment choice. This paper develops an imperfect-information framework for the analysis of platform and social regulation of card surcharging and cash discounting. It makes three main contributions. First, it identifies the conditions under which concerns about missed sales induce merchants to perceive that they must take the card. Second, it derives a set of predictions about cash discounts, card surcharges and platform fees that match, and shed light on existing evidence. Finally, it shows that the optimal regulation of surcharging is related to public policy toward merchant fees and substantially differs from current practice.

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Bibliographic Reference

Bourguignon, H, Gomes, R and Tirole, J. 2014. 'Shrouded Transaction Costs'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10171