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

Listed author(s):
  • Tamás Briglevics

    ()

  • Oz Shy

    ()

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. Copyright Springer Science+Business Media New York 2014

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File URL: http://hdl.handle.net/10.1007/s11151-014-9419-y
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Article provided by Springer & The Industrial Organization Society in its journal Review of Industrial Organization.

Volume (Year): 44 (2014)
Issue (Month): 4 (June)
Pages: 367-392

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Handle: RePEc:kap:revind:v:44:y:2014:i:4:p:367-392
DOI: 10.1007/s11151-014-9419-y
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