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Constrained or Unconstrained Price for Debit Card Payment?

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  • Manjong Lee

    (Department of Economics, Korea University, Seoul, Republic of Korea)

Abstract

Retailers in the Netherlands and the U.K. can charge different prices for a commodity depending on whether cash or a debit card is used as payment, whereas retailers in the U.S. generally cannot. These two types of economies with and without a uniform pricing constraint for cash and debit card payments are compared in a microfounded monetary model. We place particular emphasis on the distinctive features of cash and debit cards as payment methods: the cost of a cash transaction for the seller is typically lower than that of a debit card, whereas the cost of cash holdings for the buyer is higher than that of a debit card. Our results suggest that a uniform pricing constraint makes cash-holding costs decline but consumption dispersion between the poor and the rich increase. Numerical examples show that the beneficial effect of the constraint dominates its negative effect.

Suggested Citation

  • Manjong Lee, 2013. "Constrained or Unconstrained Price for Debit Card Payment?," Discussion Paper Series 1308, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:1308
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1308.pdf
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    References listed on IDEAS

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    Cited by:

    1. Łukasz Goczek & Bartosz Witkowski, 2015. "Determinants of the number of card transactions," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 39, pages 199-212.
    2. Pidong Huang & Young Sik Kim & Manjong Lee, 2014. "Optimal Allocation of Social Cost for Electronic Payment System: A Ramsey Approach," Discussion Paper Series 1402, Institute of Economic Research, Korea University.
    3. Goczek, Łukasz & Witkowski, Bartosz, . "Natężenia transakcji bezgotówkowych w Polsce: determinanty i prognozy," Gospodarka Narodowa-The Polish Journal of Economics, Szkoła Główna Handlowa w Warszawie / SGH Warsaw School of Economics, vol. 2015(3).
    4. Łukasz Goczek & Bartosz Witkowski, 2015. "Card Payments in Poland: Determinants and Prospects," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 159-177.

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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