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Constrained or unconstrained price for debit card payment?

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  • Lee, Manjong

Abstract

Retailers in the Netherlands and the U.K. can charge different prices for a commodity depending on whether cash or a debit card is used as payment, whereas retailers in the U.S. generally cannot. These two types of economies with and without a uniform pricing constraint for cash and debit card payments are compared in a microfounded monetary model. We place particular emphasis on the distinctive features of cash and debit cards as payment methods: the cost of a cash transaction for the seller is typically lower than that of a debit card, whereas the cost of cash holdings for the buyer is higher than that of a debit card. Our results suggest that a uniform pricing constraint makes cash-holding costs decline but consumption dispersion between the poor and the rich increase. Numerical examples show that the beneficial effect of the constraint dominates its negative effect.

Suggested Citation

  • Lee, Manjong, 2014. "Constrained or unconstrained price for debit card payment?," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 53-65.
    • Handle: RePEc:eee:jmacro:v:41:y:2014:i:c:p:53-65
    DOI: 10.1016/j.jmacro.2014.04.004
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    Cited by:

    1. Łukasz Goczek & Bartosz Witkowski, 2015. "Determinants of the number of card transactions," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 39, pages 199-212.
    2. Pidong Huang & Young Sik Kim & Manjong Lee, 2014. "Optimal Allocation of Social Cost for Electronic Payment System: A Ramsey Approach," Discussion Paper Series 1402, Institute of Economic Research, Korea University.
    3. Łukasz Goczek & Bartosz Witkowski, 2015. "Card Payments in Poland: Determinants and Prospects," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 159-177.

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    More about this item

    Keywords

    Cash; Debit card; Constrained price; Unconstrained price;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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