Why Don't Most Merchants Use Price Discounts to Steer Consumer Payment Choice?

31 Pages Posted: 1 Dec 2013 Last revised: 11 Jan 2014

See all articles by Tamas Briglevics

Tamas Briglevics

Boston College; Federal Reserve Bank of Boston

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: January 10, 2014

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. 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

Suggested Citation

Briglevics, Tamas and Shy, Oz, Why Don't Most Merchants Use Price Discounts to Steer Consumer Payment Choice? (January 10, 2014). Available at SSRN: https://ssrn.com/abstract=2361704 or http://dx.doi.org/10.2139/ssrn.2361704

Tamas Briglevics

Boston College ( email )

Beacon Street
Chestnut Hill, MA 02167
United States

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://https://www.frbatlanta.org/research/economists/shy-oz.aspx

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