Who Pays for Credit Cards?

Journal of Consumer Affairs - Tập 37 Số 2 - Trang 208-230 - 2003
Sujit Chakravorti1, William R. Emmons2
1Sujit Chakravorti is a senior economist at the Federal Reserve Bank of Chicago.
2William R. Emmons is an economist at the Federal Reserve Bank of St. Louis. The authors thank Lawrence Goldberg, Bob Moore, Ken Robinson, several anonymous referees, and participants at the 1998 Financial Management Association meetings for comments on earlier drafts. They also benefited from conversations with various network participants and industry experts. The views expressed are those of the authors and should not be attributed to the Federal Reserve Banks of Chicago or St. Louis, or the Federal Reserve System.

Tóm tắt

The authors model side payments in a competitive credit‐card market. If competitive retailers absorb the cost of accepting credit cards by charging a higher goods price to everyone, then someone must subsidize convenience users of credit cards to prevent them from defecting to merchants who do not accept cards. The side payment could be financed by card users who roll over balances and pay interest. It is rational for them to do so if their subjective discount rates are high enough. Charging different prices to different customers based on the underlying cost of the payment instrument would be more efficient for retailers. However, banks may offer incentives to attract convenience users because some of them may become interest‐paying users (“revolvers”) in the future.

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Journal of Consumer Affairs

Tập 37 Số 2

208-230

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