The No Surcharge Rule and Buyer Rebates: Vertical Control by a Payments Networks
Marius Schwartz and Daniel R. Vincent
,
1
(
5
)
Review of Network Economics
72-102
January
2006
Abstract
The No Surcharge Rule (NSR) precludes merchants from charging higher prices to
consumers who pay by card instead of other means (‘cash’). We analyze the NSR’s effects when
a payment network faces local monopolist merchants. Importantly, end-users’ demand for the
merchant’s product is elastic. The NSR raises network profit and harms cash users and
merchants, while overall welfare decreases if and only if the ratio of cash to card users is
