Prices for cash and cash for prices? Theory and evidence on convenient pricing

Bruno Karoubi and Régis Chenavaz

Applied Economics, 2015, vol. 47, issue 38, 4102-4115

Abstract: A transaction between a seller and a buyer incurs a payment cost. The payment cost is borne by the seller, depending on the payment instrument the buyer chooses, cash or card. Card payment is more costly than cash payment, so the seller prefers that the buyer pays cash. In this article, we study the strategy of the seller setting a convenient price, which simplifies transactions and pushes the buyer to pay cash. The theoretical analysis, which models both the seller and the buyer in a game setting, derives two propositions: (1) the seller is more likely to set a more convenient price and (2) the buyer is more likely to pay cash a more convenient price. The empirical analysis supports both propositions. Thus, sellers adopt a convenience pricing strategy - prices for cash - and this strategy pushes buyers to pay cash - cash for prices.

Date: 2015
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DOI: 10.1080/00036846.2015.1023947

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