“Market Power and Efficiency in Card Payment Systems: A Comment on Rochet & Tirole”, Luís M. B. Cabral

Comment on the Report prepared for AdC by Rochet & Tirole (“A Primer on Payment Cards”)

​Beginning with their seminal 2002 paper, Rochet and Tirole have contributed to the economic analysis of card payments systems with a series of research papers (in the period 2003-2005). In this paper, I comment on the main ideas that run through this series of papers, which I will collectively refer to by the authors’ initials, R-T.

In Section 2, I lay down a simple basic model that essentially captures the features of the R-T models. In Section 3, I propose a set of assumptions that best captures the scenario envisaged by R-T, and derive a set of results that reflect the essence of their analysis. I then explore, in Sections 4 and 5, the possibility of buyer and seller heterogeneity. Although R-T do consider this possibility, they do not develop explicit results as I do here. Section 6 summarizes the analysis in this paper.