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Working paper
Merchant Steering of Consumer Payment Choice: Lessons Learned From Consumer Surveys
In: Survey methods: insights from the field
ISSN: 2296-4754
Recent policy changes in the U.S. allow merchants to influence consumers' choice of payment
instruments by offering price discounts and other incentives. This report describes lessons learned
from using consumer survey responses to assess whether merchants tried to influence buyers'
choice of payment method. To measure the effects of these recent policy changes, we included
questions about merchant steering in pilot versions of a new diary survey of U.S. consumers. Our
findings were inconclusive because some respondents interpreted the questions differently from
the way we intended. We improved the questions in the subsequent, full-sample survey in 2012.
This paper explains why the initial pilot diary survey failed to deliver the desired results and shows
how the revised questions led to better survey responses. We find that the interpretation of a
survey depends on the way the questions are asked. Suggestions for further improvements on
using surveys to evaluate the effects of policy changes are also included.
Investment in customer recognition and information exchange
In: Information economics and policy, Band 25, Heft 2, S. 92-106
ISSN: 0167-6245
Why don't most merchants use price discounts to steer consumer payment choice?
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.
BASE
Why Do Payment Card Networks Charge Proportional Fees?
In: American economic review, Band 101, Heft 4, S. 1575-1590
ISSN: 1944-7981
This paper explains why payment card networks charge fees that are proportional to the transaction values instead of charging fixed per-transaction fees. We show that, when card networks and merchants both have market power, card networks earn higher profits by charging proportional fees. It is also shown that competition among merchants reduces card networks' gains from using proportional fees relative to fixed per-transaction fees. Merchants are found to earn lower profits under proportional fees, whereas consumer utility and social welfare are higher. Our welfare results are then evaluated with respect to the current regulatory policy debates. (JEL E42, G21, G28)
Customer recognition and competition
We introduce three types of consumer recognition: identity recognition, asymmetric preference recognition, and symmetric preference recognition. We characterize price equilibria and compare profits, consumer surplus, and total welfare. Asymmetric preference recognition enhances profits compared with identity recognition, but firms have no incentive to exchange information regarding customer-specific preferences (symmetric preference recognition). Consumers would benefit from a policy panning information exchange regarding individual consumer preferences. Our welfare analysis shows that the gains to firms from uniform pricing (no recognition) are larger than the associated harm to consumers, regardless of which regime of customer recognition serves as the basis for comparison.
BASE
Refunds and collusion in service industries
In: Journal of economics and business, Band 60, Heft 6, S. 502-516
ISSN: 0148-6195
Price Competition, Business Hours and Shopping Time Flexibility
In: The economic journal: the journal of the Royal Economic Society, Band 118, Heft 531, S. 1171-1195
ISSN: 1468-0297
Publishers, artists, and copyright enforcement
In: Information economics and policy, Band 18, Heft 4, S. 374-384
ISSN: 0167-6245
Partial outsourcing, monitoring cost, and market structure
In: The Canadian journal of economics: the journal of the Canadian Economics Association = Revue canadienne d'économique, Band 38, Heft 4, S. 1173-1190
ISSN: 1540-5982
Abstract. We investigate firms' outsourcing decisions when production requires a large number of inputs. The novelty of our approach is that it provides a testable framework to characterize the equilibrium fraction of outsourced inputs. We demonstrate that intensified competition in a Cournot market for the final good typically enlarges the set of outsourced components relative to those produced in‐house. The proportions of outsourced inputs are found to be strategic substitutes independently of whether firms compete with respect to quantities or prices in the market for the final good. JEL classification: D20, L22
Market Structure and Risk Taking in the Banking Industry
In: Journal of economics, Band 82, Heft 3, S. 249-280
ISSN: 1617-7134
Copyright protection and hardware taxation
In: Information economics and policy, Band 15, Heft 4, S. 467-483
ISSN: 0167-6245
The "Adjustable-curtain" Strategy: Overbooking of Multiclass Service
In: Journal of economics, Band 77, Heft 1, S. 73-90
ISSN: 1617-7134
Book Reviews - The Economics of Network Industries
In: Journal of institutional and theoretical economics: JITE, Band 138, Heft 1, S. 165-166
ISSN: 0932-4569
Standardization policy and international trade
In: Journal of international economics, Band 53, Heft 2, S. 363-383
ISSN: 0022-1996