Working Paper: CEPR ID: DP3943
Authors: Cornelia Holthausen; Jean-Charles Rochet
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.
Keywords: nonlinear pricing; payment systems
JEL Codes: E58; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal pricing structure (D40) | decreasing marginal fee (D40) |
| decreasing marginal fee (D40) | maximizes aggregate surplus (D61) |
| optimal marginal fees in public system must be lower than marginal cost (D40) | maintain transaction volumes (F38) |
| competition from private systems (L33) | lower optimal marginal fees in public systems (H49) |
| multiple public systems compete (P49) | different optimal tariff structures (H21) |
| presence of competition (L13) | alters pricing dynamics (D49) |