Discussion Paper Details

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Title: Efficient Pricing of Large Value Interbank Payment Systems

Author(s): Cornelia Holthausen and Jean-Charles Rochet

Publication Date: June 2003

Keyword(s): non-linear pricing and payment systems

Programme Area(s): Financial Economics

Abstract: This Paper studies the efficient pricing of large-value payment systems in the presence of unobservable heterogeneity across banks. It is shown that the optimal pricing scheme for a public monopoly system involves quantity discounts in the form of a decreasing marginal fee. This is also true when the public system competes with a private system characterized by a lower marginal cost. In this case, however, optimal marginal fees in the public system are lower than its marginal cost, and fixed fees have to be levied. We also study the case of competition between several public systems. The structure of the optimal tariff depends on the willingness of Central Banks to allow by-pass.

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Bibliographic Reference

Holthausen, C and Rochet, J. 2003. 'Efficient Pricing of Large Value Interbank Payment Systems'. London, Centre for Economic Policy Research.