Do the Poor Pay for Card Rewards of the Rich?

Malte Krüger
Authors registered in the RePEc Author Service: Malte Krueger

No 201408, ROME Working Papers from ROME Network

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 a model with monopolist product differentiation is used to show that rich card holders may actually be paying for their card rewards themselves. In this case, there is perverse distribution effect.

Keywords: Two-sided markets; card rewards; cross-subsidy; pricing strategies (search for similar items in EconPapers)
JEL-codes: G29 L15 L41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2014-09
New Economics Papers: this item is included in nep-mkt
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Journal Article: Do the Poor Pay for Card Rewards of the Rich? (2015)
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