Wednesday, September 19, 2012

Banks and Fees

The New York Times has an article on US commercial banks have been raising (or creating) new fees in an effort to compensate for lost revenue from rules on debit card fees and lower overdraft fees.  This is consistent with what we have recently been looking at in class:  two-part pricing, where there is a price for the usage of a good or service and a price on the access to purchase the good or service.  From class, we see that firms that employ this type of pricing strategy can earn higher profits than under uniform pricing.  From the article linked at the beginning, we see that this pricing strategy can irritate the firms customers.  Hence there is a trade-off between higher profits and irritated customers.

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