Iii are the fees too high is there market failure and

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iii. Are the fees too high? Is there market failure, and, if so, why? The fees are too high, this is a market failure. o There is not cost minimization – the big credit card companies are acting as monopolies and engaging in a price war but by increasing prices. The result is higher costs on the merchants. (cost not minimized). o Competition has been reversed and this hurts especially small merchants. Profitable transactions are being lost because smaller merchants can’t handle the high costs. iv Where is there competition in the credit card business and where not? There is competition amongst the credit card companies who fight over the banks and want the banks support to supply their cards. They win bank support by charging higher fees to merchants. o there is no competition on the merchant side. Regardless of what fees they face, they must accept credit cards because it is what many consumers use and otherwise they would lose business. iv. Why don’t merchants insist on payment by debit card rather than credit card or check rather than debit card? Customers find credit card the most convenient and preferred method and do not want to drive the customers away. US customers maybe like credit cards more because float and it is easier to pay bills back at once at end of billing cycle. There is risk with checks because check could bounce high barriers to entry so only a few large companies. This creates a lack of competition and that is why the fees are so high. where do visa and MasterCard compete? winning over the banks who issue their cards. competition for banks moves monopoly profits to banks. are issuers competing?? yes, for credit card holders. so, where do monopoly profits go? to customers. in what form? the perks, benefits, no annual fees, etc. but who pays for the monopoly profits that customers enjoy? the customers in the end lmao
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Chapter 8: Lending and payments are technologically similar and generates economies of scope- this draws in lenders. Mail order was very slow Credit card guarantees payment which eliminates delay and reduces trading cost of using mail order The Different Types of Money: Payment- transfer of money. Two types of money- gov. money and bank money Government money is produces by the central bank- Federal reserve Fed Dollars: Dollar bill is federal reserve note (12 fed banks) Fed also creates money in the form of deposits, it is a bank- doesn’t accept deposits from ordinary firms or households Definitive money- “real money”, it isn’t convertible into anything else (once gold it is now fed dollars) Along with fed dollars, definitive money includes currency issued by US treasury Our money, unlike gold, has no intrinsic value but people accept it because they know it can be passed to others as payment Government can create as much money as it wants, main reason for inflation around the world Bank Dollars Bank dollars- transactions deposits at various types of financial institutions Convertible on demand to definitive money, can be used for direct payment with ownership being transferred by check, etc.
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  • Fall '19
  • Credit card, Cheque, Fed

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