Do the Poor Pay for Card Rewards of the Rich?
Card payment systems are sometimes accused of taking from the poor and giving to the rich. The argument is as follows: High card fees are leading to higher retail prices for both, card users and cash users. However, high-income card holders are receiving rewards when purchasing by card. The result may be a net transfer of, mostly low-income, cash users to, mostly high-income, card users. In this article, models with product differentiation are used to show that rich card-holders may actually be paying for their card rewards themselves. In this case, there is no perverse distribution effect.
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Volume (Year): 66 (2015)
Issue (Month): 2 (August)
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References listed on IDEAS
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- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
- Wright Julian, 2010. "Why Do Merchants Accept Payment Cards?," Review of Network Economics, De Gruyter, vol. 9(3), pages 1-8, August.
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- Rochet, Jean-Charles & Tirole, Jean, 2008. "Must-Take Cards: Merchant Discounts and Avoided Costs," IDEI Working Papers 496, Institut d'Économie Industrielle (IDEI), Toulouse.
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