A Note on Partial Merchant Internalization and MIT Threshold
13 Pages Posted: 5 Feb 2016
Date Written: December 2015
In framework of Rochet and Tirole (2011), I allow for partial merchant internalization and study how MIT threshold is related to levels of inter-change fee that maximize various components of social welfare. I find that cost absorption on the side of issuers and merchant heterogeneity each bias MIT threshold upward from TUS maximizing level.
Keywords: MIT, merchant internalization, payment cards, two-sided markets
JEL Classification: E420, G280, K210, L490
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