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Why Don’t Most Merchant's Use Price Discounts to Steer Payment Choice ?'

The Federal Reserve Bank of Boston has published a public policy discussion document entitled, "Why Don’t Most Merchant’s Use Price Discount's to Steer Consumer Payment Choice" ? We find that steering consumer’s to debit and cash via price discount's reduces some merchant’s card costs. However, this cost reduction may be insufficient to offset the cost increase of administering price menu’s that vary by payment instrument.

In addition, rewards buyer's receive on credit card transaction’s may exceed the price discount's that merchant's can provide. These factors may explain why steering via price discount's is not widely observed. The full paper is here.


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