Card Rewards and Cross-Subsidization in the Gasoline and Grocery Markets

Berkovich Efraim
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Berkovich Efraim: Manhattanville College

Review of Network Economics, 2012, vol. 11, issue 4, 38

Abstract: Since many merchants charge consumers a single price regardless of payment method, payment card rewards programs may cause some consumers to indirectly subsidize others. From our consumer survey, we find that higher income consumers received a higher rewards rate, and from merchant operating statements, we find that card costs are likely passed on to consumers. We calculate that in 2009 about $1.4b to $1.9b was transferred in the U.S. due to rewards on groceries and gasoline. Because of the distribution of rewards in the population, under certain assumptions, card rewards programs may be a welfare transfer from poor to rich.

Keywords: payment cards; credit cards; card rewards; cross-subsidization; groceries and gasoline (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1515/1446-9022.1300

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