Single euro payment area and banking industry : discriminatory pricing vs. non-discriminatory pricing

Abstract

This collection includes a selection of research by students of the PhD Program in Applied Economics (UAB) and the Master of Applied Research in Economics and Business (MAREB) - specialization in Applied Economics.

The Single Euro Payment Area (SEPA) project eliminates the incompatibility of domestic payment systems across European countries. It also enforces uniform pricing between national and international transactions. How does this policy affect competition among European banks in the retail payment market? To address this issue, I explore and solve a model of non-linear price competition between two asymmetric banks in terms of capital by considering price discrimination in pre-SEPA and uniform pricing in post-SEPA under the presence of economies of scale. My results show that the transaction pattern has a vital role in the effect of SEPA on competition between banks. Competition is less intense in post-SEPA when the transaction pattern is domestically oriented. Moreover, comparison of pre- and post-SEPA suggests that SEPA intensifies competition when economies of scale are large enough. I further show that consumer surplus improves in post-SEPA.