Why don’t most merchants use price discounts to steer consumer payment choice?

Tamás Briglevics and Oz Shy

No 12-9, Public Policy Discussion Paper from Federal Reserve Bank of Boston

Abstract: Recent legislation and court settlements in the United States allow merchants to use price discounts to steer customers to pay with means of payment that are less costly to merchants. This paper suggests one method of calculating merchants? change in profit associated with giving price discounts to buyers who pay with debit cards and cash. We use data from the pilot of the Boston Fed?s Diary of Consumer Payment Choice to compute rough estimates of the expected net cost reduction by merchant type that may result from debit card and cash price discounts. We find that steering consumers to debit and cash via price discounts reduces some merchants? card costs. However, this cost reduction may be insufficient to offset the cost increase of administering price menus that vary by payment instrument. In addition, rewards buyers receive on credit card transactions may exceed the price discounts that merchants can provide. These factors may explain why steering via price discounts is not widely observed.

Keywords: Payment systems; Credit cards; Debit cards; Cash transactions (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban and nep-mkt
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.bostonfed.org/economic/ppdp/2012/ppdp1209.htm (text/html)
http://www.bostonfed.org/economic/ppdp/2012/ppdp1209.pdf (application/pdf)

Related works:
Journal Article: Why Don’t Most Merchants Use Price Discounts to Steer Consumer Payment Choice? (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbpp:12-9

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Public Policy Discussion Paper from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().