Comments on: Onions Forever! A Response to Allan Shampine http://truthonthemarket.com/2009/12/08/onions-forever-a-response-to-allan-shampine/ Academic commentary on law, business, economics and more Sun, 12 Feb 2012 23:39:41 +0000 hourly 1 http://wordpress.com/ By: TRUTH ON THE MARKET » Symposium Wrap Up http://truthonthemarket.com/2009/12/08/onions-forever-a-response-to-allan-shampine/#comment-7989 Thu, 10 Dec 2009 08:11:31 +0000 http://www.truthonthemarket.com/?p=3416#comment-7989 [...] payment systems, and in the macro-economy more generally are simply unknown:  Richard’s do no harm principle seems like the strongest conclusion in this [...]

]]> By: Allan Shampine http://truthonthemarket.com/2009/12/08/onions-forever-a-response-to-allan-shampine/#comment-7988 Tue, 08 Dec 2009 21:36:55 +0000 http://www.truthonthemarket.com/?p=3416#comment-7988 A number of commenters and posters have argued now that a credit card network is a closed system, and that decreases in fees in one place must, by definition, be offset by increases in fees in another place. The experience in Australia has been cited to support this claim – an experience which Bob Stillman, among others, has studied. While Todd Zywicki and others point out, correctly, that research by the Reserve Bank of Australia has indicated that cardholder fees rose and rewards programs became less generous, it is important to point out that Bob did not say that the network was a closed system.

That is, Bob found, as his post here states, that the reduction in interchange fees was not fully offset by increases in other fees. Total fees flowing into the network were lower – so bank profits fell. Put another way, the total fees paid by cardholders and merchants to the banks were lower after interchange fees were reduced even though volumes did not decline.

Other researchers have found similar results. Intuitively, if banks could raise the same amount of money without interchange fees, it is hard to see why all of this debate would be necessary.

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