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Efficient Pricing of Large Value Interbank Payment Systems

Author

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  • Holthausen, Cornelia
  • Rochet, Jean-Charles
Abstract
This Paper studies the efficient pricing of large-value payment systems in the presence of unobservable heterogeneity across banks. It is shown that the optimal pricing scheme for a public monopoly system involves quantity discounts in the form of a decreasing marginal fee. This is also true when the public system competes with a private system characterized by a lower marginal cost. In this case, however, optimal marginal fees in the public system are lower than its marginal cost, and fixed fees have to be levied. We also study the case of competition between several public systems. The structure of the optimal tariff depends on the willingness of Central Banks to allow by-pass.
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Suggested Citation

  • Holthausen, Cornelia & Rochet, Jean-Charles, 2003. "Efficient Pricing of Large Value Interbank Payment Systems," IDEI Working Papers 185, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:593
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    References listed on IDEAS

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    5. Freixas, Xavier & Parigi, Bruno, 1998. "Contagion and Efficiency in Gross and Net Interbank Payment Systems," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 3-31, January.
    6. Furfine, Craig H & Stehm, Jeff, 1998. "Analyzing Alternative Intraday Credit Policies in Real-Time Gross Settlement Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 832-848, November.
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    8. Hancock, Diana & Humphrey, David B. & Wilcox, James A., 1999. "Cost reductions in electronic payments: The roles of consolidation, economies of scale, and technical change," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 391-421, February.
    9. David Vanhoose, 2000. "Central bank policy making in competing payment systems," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(2), pages 117-139, June.
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    Citations

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    Cited by:

    1. Wilko Bolt & David B. Humphrey, 2005. "Public Good Aspects of TARGET: Natural Monopoly, Scale Economies, and Cost Allocation," DNB Working Papers 036, Netherlands Central Bank, Research Department.
    2. Bolt, Wilko & Humphrey, David, 2005. "Public good issues in TARGET: natural monopoly, scale economies, network effects and cost allocation," Working Paper Series 505, European Central Bank.
    3. Morten L. Bech & Christine Preisig & Kimmo Soramaki, 2008. "Global trends in large-value payments," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 59-81.
    4. Krahnen, Jan Pieter, 2018. "Über Scheinriesen: Was TARGET-Salden tatsächlich bedeuten. Eine finanzökonomische Überprüfung," SAFE White Paper Series 56, Leibniz Institute for Financial Research SAFE.
    5. repec:zbw:bofrdp:2003_016 is not listed on IDEAS
    6. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, University Library of Munich, Germany.
    7. Ben R. Craig & Falko Fecht, 2011. "Substitution between net and gross settlement systems: A concern for financial stability?," Working Papers (Old Series) 1132, Federal Reserve Bank of Cleveland.
    8. Kemppainen, Kari, 2003. "Competition and regulation in European retail payment systems," Research Discussion Papers 16/2003, Bank of Finland.
    9. Tore Nilssen, 2011. "Risk externalities in a payments oligopoly," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 211-234, December.
    10. Kemppainen, Kari, 2003. "Competition and regulation in European retail payment systems," Bank of Finland Research Discussion Papers 16/2003, Bank of Finland.
    11. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Staff Working Papers 07-28, Bank of Canada.

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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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