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Fraud, Investments and Liability Regimes in Payment Platforms

Creti, Anna; Verdier, Marianne (2014), Fraud, Investments and Liability Regimes in Payment Platforms, International Journal of Industrial Organization, 35, p. 84-93. 10.1016/j.ijindorg.2014.06.003

Type
Article accepté pour publication ou publié
Date
2014
Journal name
International Journal of Industrial Organization
Volume
35
Publisher
Elsevier
Pages
84-93
Publication identifier
Metadata
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Author(s)
Creti, Anna

Verdier, Marianne
Economie Quantitative, Intégration, Politiques Publiques et Econométrie [EQUIPPE]
Abstract (EN)
In this paper, we discuss how fraud losses impact the price structure chosen by a monopolistic payment platform, if merchants can invest in fraud detection technologies. We show that liability rules bias the structure of the prices charged by the platform to consumers and merchants with respect to a case in which such a responsibility regime is not implemented. If consumers are liable for fraud, the profit-maximizing price structure is neither biased in favor of consumers nor merchants. If consumers are not liable for fraud, the platform lowers the price for merchants to provide them with investment incentives. Under the zero liability rule for consumers, the profit-maximizing allocation of fraud losses maximizes social welfare.
Subjects / Keywords
Payment card systems; interchange fees; two-sided markets; fraud; liability
JEL
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
L31 - Nonprofit Institutions; NGOs; Social Entrepreneurship
L42 - Vertical Restraints; Resale Price Maintenance; Quantity Discounts