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Endogenous credit-card acceptance in a model of precautionary demand for money

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  • Adrian Masters
  • Luis Raúl Rodríguez-Reyes

Abstract

A credit-card acceptance decision by retailers is embedded into a simple model of precautionary demand for money. The model gives a new explanation for how the use of credit-cards can differ so widely across countries. Retailers' propensity to accept cards reduces the need for buyers to hold cash as the chance of a stock-out (of cash) is reduced. When retailers make their decision with respect to credit-card acceptance they do not take into account the effect that decision has on other sellers. This externality generates multiple equilibria over some portions of the parameter space. Copyright 2005, Oxford University Press.

Suggested Citation

  • Adrian Masters & Luis Raúl Rodríguez-Reyes, 2005. "Endogenous credit-card acceptance in a model of precautionary demand for money," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 157-168, January.
    • Handle: RePEc:oup:oxecpp:v:57:y:2005:i:1:p:157-168
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    References listed on IDEAS

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    1. McAndrews, James J. & Rob, Rafael, 1996. "Shared ownership and pricing in a network switch," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 727-745, October.
    2. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
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    Cited by:

    1. Fulford, Scott L., 2015. "How important is variability in consumer credit limits?," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 42-63.
    2. Luis Raúl Rodríguez-Reyes, 2018. "A Model of the Indirect Effect of Crime on the Demand for Money," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 13(4), pages 571-584, Octubre-D.

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