More on the economics of credit cards

Joshua Gans directs my attention toward this symposium, led by Geoffrey Manne.  Here is an excerpt from Manne's summary statement:

…theory and empirical evidence suggest that lowering interchange fees does nothing to help consumers, and in fact harms them by raising annual fees and thus again by limiting competition among cards at the point of sale.  Perhaps there is some policy reason why we would want to help merchants at the expense of consumers, but the issue, often framed as merchants and consumers against banks and card networks, really seems to be merchants against consumers.  At best, we have no idea what the full social implications of capping interchange fees would be–but there is still a conflict between merchant and consumer interests, and we should be wary.

Here is Joshua Gans's post on the importance of the "no surcharge rule":

The better rule to subvert would be the ‘no surcharge rule’ that prevents merchants from offering different prices to consumers based on payment instrument. That rule was abandoned in Australia and we see many instances where it bites. In that situation, the strong theoretical prediction is that what fees Visa uses to extract payments from merchants do not matter for overall efficiency; even if they do matter for prices. This is one of those cases where there are relatively simple regulatory interventions to try that could have a big effect.

I am not endorsing all of these materials but simply offering them up for evidence that a moral condemnation of Visa is an overly hasty response.


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