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Interchange Fees: Efficient Pricing or Market Failure?

 |  June 12, 2011

This discussion concerns whether Interchange Fees provide Efficient Pricing or Market Failure.

The conversation is begun by Richard  Schmalensee from MIT, who concludes that while the card schemes may not set the “socially optimal fee” there is no reason to believe that the fee they do set is that much different or that regulators have the necessary information to set the best fee.

Andrea Amelio from DG COMP’s Chief Economist Team describes the Commission’s antitrust case against MasterCard and the difficulties that interchange fees present under Article 101.

Wilko Bolt, a Senior Economist in the research department at De Nederlandsche Bank in Amsterdam, explains how the complexities of the card business affected the analysis of interchange fees.

Tomasso Valletti used the example of mobile termination to explain how regulating one price in a two-sided market affected the other price through the “waterbed effect”.

Watch the discussion here.

To help view the discussion, you can download the presentation decks here:

Richard Schmalensee presentation

Andrea Amelio presentation

Wilko Bolt presentation

Tomasso Valetti presentation