Wednesday, February 16, 2011

Debit Card Fee Caps

One of the topics in Prin. of Microeconomics is price controls - where a government creates laws that set legal maximums (price ceilings) or legal minimums (price floors) on market goods and services. Here we see an example of the government implementing a price ceiling on the fees (or price) that can be charged by banks on debit cards. For a price ceiling to be binding (or to have an economic effect) the price ceiling has to be below the market (equilibrium) price. As documented in this Financial Times article, banks are fighting the implementation of this new price ceiling as it will reduce their revenues (and profits) due to the forced lower price.

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