The Federal Reserve Bank of Boston presents an economic anlysis of the ramifications of the recently proposed settlement between the Department of Justice and Visa and MasterCard over merchant interchange fees.
In word and spirit, the proposed settlement represents a significant step toward promoting competition in the credit card market.
However, the Boston Fed finds that merchants are unlikely to be able to take full advantage of their newly-found freedom to present consumers with information about card charges because they currently lack complete data on the exact merchant discount fees applying to their customers' credit cards.
The paper analyses the likely consequences of this information problem, and consider ways in which it could be remedied. It also evaluates the probable welfare consequences of allowing merchants to impose surcharges to reflect the fees associated with the use of payment cards.
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