Do the Poor Pay for Card Rewards of the Rich?

Malte Krueger

Review of Economics, 2015, vol. 66, issue 2, 129-154

Abstract: 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.

Keywords: Two-sided markets; card rewards; surcharging; vertical product differentiation (search for similar items in EconPapers)
Date: 2015
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Working Paper: Do the Poor Pay for Card Rewards of the Rich? (2014)
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DOI: 10.1515/roe-2015-0202

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