Why Don't Most Merchants Use Price Discounts to Steer Consumer Payment Choice?
31 Pages Posted: 1 Dec 2013 Last revised: 11 Jan 2014
Date Written: January 10, 2014
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. We use transaction data to compute rough estimates of the expected net cost reduction by merchant type of giving debit card and cash price discounts. We find that steering consumers to debit and cash via simple price discounts reduces most merchants' card processing cost; however, this reduction is small and may be insufficient to offset the increase in the cost of administering price menus that vary by payment instrument.
Keywords: Steering payment methods, price discounts, card surcharges, merchant discount fee, swipe cost, payment instruments, payment methods
JEL Classification: E42
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