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Discounts For Cash In Retail Gasoline Marketing

Author

Listed:
  • JOHN M. Barron
  • MICHAEL E. Staten
  • JOHN Umbeck

Abstract

Before introducing cash discounting in retail gasoline markets, major oil companies offered proprietary credit cards as an unpriced service to their customers. This paper analyzes the origins of cash discounting in order to determine why oil companies introduced explicit pricing of the credit service in 1982 only to begin discouraging it by the end of the decade. Sharp increases in nominal interest rates and in the real price of gasoline between 1978-1982 spurred a rapid rise in the cost of financing accounts receivable. This increasing cost in part drove the initial decision to discount. By 1990 the discounting trend reversed as the costs of processing credit transactions and of the float associated with non-revolving accounts receivable fell. Copyright 1992 Western Economic Association International.

Suggested Citation

  • JOHN M. Barron & MICHAEL E. Staten & JOHN Umbeck, 1992. "Discounts For Cash In Retail Gasoline Marketing," Contemporary Economic Policy, Western Economic Association International, vol. 10(4), pages 89-102, October.
  • Handle: RePEc:bla:coecpo:v:10:y:1992:i:4:p:89-102
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    References listed on IDEAS

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    1. Kitch, Edmund W, 1990. "The Framing Hypothesis: Is It Supported by Credit Card Issuer Opposition to a Surcharge on a Cash Price?," Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(1), pages 217-233, Spring.
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    Cited by:

    1. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
    2. Stavins, Joanna & Shy, Oz, 2015. "Merchant steering of consumer payment choice: Evidence from a 2012 diary survey," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 55(C), pages 1-9.
    3. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
    4. Tamás Briglevics & Oz Shy, 2014. "Why Don’t Most Merchants Use Price Discounts to Steer Consumer Payment Choice?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 367-392, June.
    5. Sujit Chakravorti & Alpa Shah, 2001. "A study of the interrelated bilateral transactions in credit card networks," Occasional Paper; Emerging Payments EPS-2001-2, Federal Reserve Bank of Chicago.
    6. Wilko Bolt & Sujit Chakravorti, 2008. "Consumer choice and merchant acceptance of payment media," Working Paper Series WP-08-11, Federal Reserve Bank of Chicago.
    7. Wilko Bolt & Sujit Chakravorti, 2011. "Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards," DNB Working Papers 331, Netherlands Central Bank, Research Department.
    8. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
    9. Anneke Kosse & David-Jan Jansen, 2011. "Choosing how to pay: the influence of home country habits," DNB Working Papers 328, Netherlands Central Bank, Research Department.
    10. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
    11. Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago.

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