The Law and Economics of Interchange Fees and Credit Card Markets
Today marks the start of our two-day symposium on the law and economics of interchange fees and credit cards. As I noted in my announcement, the scholarly and policy debates over interchange fees and credit card markets more generally are raging, with several bills pending in Congress and a recent report by the GAO on the topic. Meanwhile, the financial crisis has brought increased scrutiny to financial institutions and credit markets, and consumer credit in particular is in the regulatory cross hairs. Litigation continues in the Eastern District of New York, and outside the US other countries continue to scrutinize (and regulate) interchange fees.
As the GAO notes:
Proposals for reducing interchange fees in the United States or other countries have included (1) setting or limiting interchange fees, (2) requiring their disclosure to consumers, (3) prohibiting card networks from imposing rules on merchants that limit their ability to steer customers away from higher-cost cards, and (4) granting antitrust waivers to allow merchants and issuers to voluntarily negotiate rates. If these measures were adopted here, merchants would benefit from lower interchange fees. Consumers would also benefit if merchants reduced prices for goods and services, but identifying such savings would be difficult. Consumers also might face higher card use costs if issuers raised other fees or interest rates to compensate for lost interchange fee income. Each of these options also presents challenges for implementation, such as determining at which rate to set, providing more information to consumers, or addressing the interests of both large and small issuers and merchants in bargaining efforts.
Our symposium will bring together several of the world’s leading experts on interchange fees and the law and economics of credit card markets. Our participants will discuss a range of issues surrounding the regulation of interchange and credit card markets.
- Omri Ben-Shahar (University of Chicago Law School)
- Tom Brown (O’Melveney & Myers)
- Bob Chakravorti (Federal Reserve Bank of Chicago)
- Richard Epstein (University of Chicago and NYU Law Schools)
- Joshua Gans (University of Melbourne Business School)
- Ron Mann (Columbia University Law School)
- Geoffrey Manne (International Center for Law & Economics and Lewis & Clark Law School)
- Tim Muris (George Mason University School of Law and O’Melveney & Myers)
- Allan Shampine (Compass/Lexecon)
- Bob Stillman (CRA International)
- Jim Van Dyke (Javelin Strategy & Research)
- Joshua Wright (George Mason University School of Law)
- Todd Zywicki (George Mason University School of Law)
The Symposium will proceed in the following order:
- Introductory Statements. Posts from Richard Epstein and Ronald Mann
- Framing the Discussion. Posts from Bob Stillman, Allan Shampine, Tom Brown & Tim Muris, and Bob Chakravorti
- The Consequences of Regulation and the View from Australia. Posts from Joshua Gans and Todd Zywicki
- Looking at the Proposed US Legislation. Posts from Omri Ben-Shahar and Joshua Wright
- Assessing Cross-Subsidies. Posts from Tom Brown & Tim Muris and Todd Zywicki
- Assessing the Network Rules. Posts from Bob Chakravorti and Joshua Gans
- Considering the Costs: Fraud. Posts from Jim Van Dyke, Allan Shampine and Geoffrey Manne
- Antitrust Issues. Posts from Joshua Wright and Geoffrey Manne
- Additional Responses and Closing Thoughts. Posts from TBD
The posts will appear regularly throughout the day to allow time between posts for discussion: Check back for updates and comments. Expect free-ranging discussion in the comments–most of these issues are inter-related and we will return to several themes throughout the symposium.
We look forward to an engaged discussion in the comments to the symposium posts, and we hope all of our readers will check in frequently during the symposium and will contribute to the debate.
Finally, I am delighted to announce that this symposium is being hosted by the International Center for Law and Economics.
The International Center for Law and Economics (ICLE) is a new entity—a global think tank aimed at building a strong, managed, international network of meaningful (and self-sustaining) institutions and academics devoted to methodologies and research agendas that will inject rigorous, evidence-based thinking into important policy debates. Pursuing the most successful and rigorous aspects of law and economics, dynamic competition analysis, New Institutional Economics and similar approaches to law, economics and policy, the ICLE aims to become an essential part of the policy landscape in the most important policy debates around the globe. The goals of the ICLE are both to create important scholarship as well as to ensure that it has policy relevance. The ICLE develops intellectual work itself as well as drawing on its global intellectual network. The ultimate goal is the reinvigoration of a law and economics movement in the spirit of intellectual forebears like Armen Alchian, Ronald Coase, Harold Demsetz, Frank Easterbrook, Benjamin Klein, Henry Manne and Oliver Williamson. The ICLE is founded in honor of Armen Alchian.
The center’s work is built around the following principles:
- A commitment to the application of economic theory, particularly price theory and new institutional economics, to antitrust and regulatory problems
- A commitment to empirical scholarship and applications of economic theory with real world relevance
- The use of formal mathematical modeling exclusively as a means to furthering our knowledge about the world, rather than an ends in its own right
- A dedication to understanding both the role of the law and institutions in facilitating competition as well as the consequences of legal rules
- A commitment to promoting an international discourse on issues of antitrust and regulatory policy in the increasingly-global regulatory environment
And so without further ado . . .