Imposing choice on the uninformed : the case of dynamic currency conversion

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Ewerhart, Christian and Li, Sheng (2023) Imposing choice on the uninformed : the case of dynamic currency conversion. Journal of Banking and Finance, 154. 106917. ISSN 0378-4266 (https://doi.org/10.1016/j.jbankfin.2023.106917)

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Abstract

Over the course of the past two decades, it has become a common experience for consumers authorizing an international transaction via credit card to be invited to choose the currency in which they wish the transaction to be executed. While this choice, made feasible by a technology known as dynamic currency conversion (DCC), seems to foster competition, we argue that the opposite is the case. In fact, the unique pure-strategy equilibrium in a natural fee-setting game, with uninformed and possibly inattentive consumers, turns out to be highly asymmetric, entailing fees for the service provider that persistently exceed the monopoly level. Although losses in welfare may be substantial, a regulatory solution is unlikely to come about due to a global free-rider problem.

ORCID iDs

Ewerhart, Christian and Li, Sheng ORCID logoORCID: https://orcid.org/0000-0002-9662-9385;
  • Item type:Article
    ID code:87282
    Dates:
    Date
    Event
    30 September 2023
    Published
    24 June 2023
    Published Online
    1 June 2023
    Accepted
    8 April 2022
    Submitted
    Subjects:Social Sciences > Finance
    Department:Strathclyde Business School > Accounting and Finance
    Depositing user: Pure Administrator
    Date deposited:10 Nov 2023 11:30
    Last modified:11 Nov 2024 14:08
    URI:https://strathprints.strath.ac.uk/id/eprint/87282
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