Review of Industrial Organization

, Volume 44, Issue 4, pp 367–392 | Cite as

Why Don’t Most Merchants Use Price Discounts to Steer Consumer Payment Choice?

Article

Abstract

Recent legislation and court settlements in the United States allow merchants to use price discounts to steer customers to pay with means of payment that are less costly to merchants. We use transaction data to compute rough estimates of the expected net cost reduction by merchant type of giving debit card and cash price discounts. We find that steering consumers to debit and cash via simple price discounts reduces most merchants’ card processing cost; however, this reduction is small and may be insufficient to offset the increase in the cost of administering price menus that vary by payment instrument.

Keywords

Steering payment methods Price discounts Card surcharges  Merchant discount fee Swipe cost Payment instruments Payment methods 

JEL Classification

E42 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Research DepartmentFederal Reserve Bank BostonBostonUSA
  2. 2.Economics DepartmentBoston CollegeChestnut HillUSA

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