Research Discussion Papers, Bank of Finland
No 11/2005:
The mixed oligopoly of cross-border payment systems
Karlo Kauko ()
Abstract: This paper presents a model depicting cross-border payment
systems as a mixed oligopoly. A private net settlement system that
maximises profit competes with the central banks’ gross settlement system
that maximises welfare. It may be optimal for the central bank system to
encourage increased use of the private system by charging fees that exceed
the marginal cost. The central bank system is not only a competitor but
also an essential service provider, because central bank money is needed
for net settlement of payments in the private system. In some cases the
central bank system can paradoxically induce the private system to charge
lower fees by making it expensive to use central bank money for settlement
purposes.
Keywords: payment systems; network economics; mixed oligopolies; (follow links to similar papers)
JEL-Codes: F36; G29; L13; L44; (follow links to similar papers)
35 pages, May 11, 2005
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