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Card Rewards and Cross-Subsidization in the Gasoline and Grocery Markets

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  • Berkovich Efraim

    (Manhattanville College)

Abstract

Since many merchants charge consumers a single price regardless of payment method, payment card rewards programs may cause some consumers to indirectly subsidize others. From our consumer survey, we find that higher income consumers received a higher rewards rate, and from merchant operating statements, we find that card costs are likely passed on to consumers. We calculate that in 2009 about $1.4b to $1.9b was transferred in the U.S. due to rewards on groceries and gasoline. Because of the distribution of rewards in the population, under certain assumptions, card rewards programs may be a welfare transfer from poor to rich.

Suggested Citation

  • Berkovich Efraim, 2012. "Card Rewards and Cross-Subsidization in the Gasoline and Grocery Markets," Review of Network Economics, De Gruyter, vol. 11(4), pages 1-38, December.
    • Handle: RePEc:bpj:rneart:v:11:y:2012:i:4:p:1-38:n:1
    DOI: 10.1515/1446-9022.1300
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    References listed on IDEAS

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