Endogenous credit-card acceptance in a model of precautionary demand for money

Adrian Masters and Luis Rodríguez-Reyes ()

Oxford Economic Papers, 2005, vol. 57, issue 1, 157-168

Abstract: A credit-card acceptance decision by retailers is embedded into a simple model of precautionary demand for money. The model gives a new explanation for how the use of credit-cards can differ so widely across countries. Retailers' propensity to accept cards reduces the need for buyers to hold cash as the chance of a stock-out (of cash) is reduced. When retailers make their decision with respect to credit-card acceptance they do not take into account the effect that decision has on other sellers. This externality generates multiple equilibria over some portions of the parameter space. Copyright 2005, Oxford University Press.

Date: 2005
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