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

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  • Tamás Briglevics

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  • Oz Shy

    ()

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. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • 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.
  • Handle: RePEc:kap:revind:v:44:y:2014:i:4:p:367-392
    DOI: 10.1007/s11151-014-9419-y
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    References listed on IDEAS

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    Cited by:

    1. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    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. Stavins, Joanna & Wu, Huijia, 2017. "Payment discounts and surcharges: the role of consumer preferences," Working Papers 17-4, Federal Reserve Bank of Boston.
    4. Daniel Flores & Vitaliy Kalashnikov, 2017. "Parking Discounts: Price Discrimination with Different Marginal Costs," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(1), pages 91-103, February.
    5. Oz Shy, 2014. "Measuring Some Effects Of The 2011 Debit Card Interchange Fee Reform," Contemporary Economic Policy, Western Economic Association International, vol. 32(4), pages 769-783, October.
    6. Arango, Carlos & Huynh, Kim P. & Sabetti, Leonard, 2015. "Consumer payment choice: Merchant card acceptance versus pricing incentives," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 130-141.

    More about this item

    Keywords

    Steering payment methods; Price discounts; Card surcharges; Merchant discount fee; Swipe cost; Payment instruments; Payment methods; E42;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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