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Convenient prices, cash payments and price rigidity

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  • Bouhdaoui, Y.
  • Bounie, D.
  • François, A.

Abstract

Recent works suggest that convenient prices that match monetary denominations exhibit above-average price rigidity and are set up by firms that have incentives to be paid in cash. The relationship between convenient prices and cash usage has however never been explicitly examined. This paper proposes a model that relates convenient prices to cash usage and exploits to test it a unique dataset in 2011 on cash payments and prices by a representative sample of French consumers. In line with the model, estimation results bring direct evidence that individuals' shares of cash payments increase with convenient prices. This finding confirms that price rigidity can be in part explained by the use of cash to pay convenient prices.

Suggested Citation

  • Bouhdaoui, Y. & Bounie, D. & François, A., 2014. "Convenient prices, cash payments and price rigidity," Economic Modelling, Elsevier, vol. 41(C), pages 329-337.
    • Handle: RePEc:eee:ecmode:v:41:y:2014:i:c:p:329-337
    DOI: 10.1016/j.econmod.2014.05.030
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    3. Bouhdaoui, Yassine & Van Hove, Leo, 2017. "On the socially optimal density of coin and banknote series: Do production costs really matter?," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 252-267.
    4. Snir, Avichai & Chen, Haipeng (Allan) & Levy, Daniel, 2022. "Zero-Ending Prices, Cognitive Convenience, and Price Rigidity," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Forthcomi, pages 1-39.
    5. Arango-Arango, Carlos A. & Bouhdaoui, Yassine & Bounie, David & Eschelbach, Martina & Hernandez, Lola, 2018. "Cash remains top-of-wallet! International evidence from payment diaries," Economic Modelling, Elsevier, vol. 69(C), pages 38-48.
    6. Bruno Karoubi & R駩s Chenavaz, 2015. "Prices for cash and cash for prices? Theory and evidence on convenient pricing," Applied Economics, Taylor & Francis Journals, vol. 47(38), pages 4102-4115, August.
    7. Prescott, Brian C. & Shy, Oz, 2023. "Cash payments and the penny policy debate," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 80-94.
    8. Shy, Oz, 2020. "How currency denomination and the ATM affect the way we pay," Journal of Economics and Business, Elsevier, vol. 111(C).

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