Working Paper

Credit and the no-surcharge rule


Abstract: A controversial aspect of payment cards has been the ?no-surcharge rule.? This rule, which is part of the contract between the card provider and a merchant, states that the merchant cannot charge a customer who pays by card more than a customer who pays by cash. In this paper we consider the design of an optimal card-based payment system when cash is available as an alternative means of payment. We find that a version of the no-surcharge rule emerges as a natural and advantageous feature of such a system.

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Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2006

Number: 2006-25