We build a model of credit card pricing that explicitly takes into account credit functionality. We show that a monopoly card network always selects an interchange fee that exceeds the level that maximizes consumer surplus. If regulators only care about consumer surplus, a conservative...

The canonical selection contracting programme takes the agent's participation decision as deterministic and finds the optimal contract, typically satisfying this constraint for the worst type. Upon weakening this assumption of known reservation values by introducing independent randomness into...