Central Banking

Fed paper finds benefits in card networks’ price discrimination

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Price discrimination by payment card networks maximises profits for the companies involved, while also improving social welfare, according to a working paper published by the Federal Reserve Bank of Richmond on November 20.

The authors, Zhu Wang and Julian Wright, investigate the use of linear ad-valorem fees – fees that increase in proportion to the sale price – charged by card networks such as Visa and MasterCard.

The paper finds that allowing ad-valorem fees increases social welfare – both

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