Does how you pay influence the share of healthy items that you Buy? Assessing differences in nutritional quality of food purchases by payment type

Shoppers that use cash as a form of payment are more likely to evaluate the necessity of an item they purchase than shoppers that pay with other forms of payment, such as credit cards. In this paper, we hypothesize that the use of cash may nudge shoppers to buy more healthful food items. We empirically evaluate whether the payment method affects the nutritional quality of food purchases. We also test whether the effect of payment type differs between food-at-home and food-away-from-home events. Specifically, we test whether shoppers purchase a higher share of nutritious food items when they pay with cash compared to when they use credit and debit cards. We use the National Household Food Acquisition and Purchase Survey (FoodAPS) data that tracks individual’s food purchases over one week. Using the Guiding Stars Program (GSP) algorithm to measure the nutritional quality of food items, we calculate the share of healthy items purchased at each event. We find that shoppers using cash purchase a higher share of healthy items than when they use credit or debit cards, and this nudging effect is primarily driven by food-away-from-home purchases.     

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. We use transaction data to compute rough estimates of the expected net cost reduction by merchant type of giving debit card and cash price discounts. We find that steering consumers to debit and cash via simple price discounts reduces most merchants’ card processing cost; however, this reduction is small and may be insufficient to offset the increase in the cost of administering price menus that vary by payment instrument.     

COMPETING PAYMENT SCHEMES*

This paper presents a model of competing payment schemes. Unlike previous work on generic two‐sided markets, the model allows for the fact that in a payment system, users on one side of the market (merchants) compete to attract users on the other side (consumers, who may use cards for purchases). It analyzes how competition between card associations and between merchants affects the choice of interchange fees, and thus the structure of fees charged to cardholders and merchants. Implications for other two‐sided markets are discussed.     

Payment Systems and Interchange Fees

In a typical bank credit card transaction, the merchant's bank pays an interchange fee , collectively determined by all participating banks, to the cardholder's bank. This paper shows how the interchange fee balances charges between cardholders and merchants under imperfect competition. The privately optimal fee depends mainly on differences between cardholders' and merchants' banks, not their collective market power. In a non-extreme case, the profit-maximizing interchange fee also maximizes total output and producers' plus consumers' surplus. There is no economic basis for favoring proprietary payment systems, which do not need interchange fees to balance charges, over the cooperative bank card systems.     

Shrouded transaction costs: must-take cards,discounts and surcharges

The proliferation of new payment methods on the Internet rekindles the old and unsettled debate about merchants’ incentive and ability to differentiate price according to payment choice. This paper develops an imperfect-information framework for the analysis of platform and social regulation of card surcharging and cash discounting. It makes three main contributions. First, it identifies the conditions under which concerns about missed sales induce merchants to perceive that they must take the card. Second, it derives a set of predictions about cash discounts, card surcharges and platform fees that shed light on existing evidence. Finally, it shows that the optimal regulation of surcharging is related to public policy toward merchant fees and substantially differs from current practice.     

Intermediating technologies and multi-group adoption: A comparison of consumer and merchant adoption intentions toward a new electronic payment system

Traditional technology adoption research has assumed a single adopting group. However, there are many settings in which multiple groups must jointly adopt an innovation in order for it to succeed. This is particularly true for new information technology innovations that mediate the relationship between two groups. For example, online exchanges (e.g., Freemarkets, GoFish) must attract both suppliers and buyers in order to be successful. The same is true for providers of hardware/software solutions for electronic data interchange and supply chain management. This article describes the phenomenon of multigroup adoption with a particular focus on applications within the financial services and retailing industries. Empirically, the article reports findings from a study that illustrates the importance of evaluating and managing multigroup technology adoption in the specific context of an in‐market trial of a new smart card‐based electronic payment system. Two distinct groups critical to the smart card's success are studied: consumers (who must decide to use the new card) and retailers (who must agree to adopt and use new technology needed to process smart card transactions). The study identifies which characteristics of the smart card innovation are most closely linked to intention to adopt for each group, and examines how these key characteristics differ by group. Perceptual data were collected via a mail survey from consumers and merchants living in the city where a one‐year market trial of the new card was taking place. Four separate sampling frames were established for both consumers and merchants who were participating in the trial as well as both consumers and merchants who were not participating in the trial. Random samples were then drawn from these frames. More than 350 consumers and over 250 merchants completed and returned the survey. Responses were analyzed separately for each of the four groups sampled. The most important characteristic leading to adoption identified by all four groups was relative advantage—the smart card had to demonstrate a clear competitive advantage over what they currently used. Compatibility (i.e., the degree to which the smart card fit with their current preferences) was also noted as important to all but the nonparticipating merchant group. Beyond this, the key drivers of adoption differed considerably by group. Participating consumers and participating merchants appeared to possess different perspectives when assessing their decision to adopt the smart card technology. Consumers seemed to value the notion that the adoption decision is under their control, whereas merchants seemed to place more value on the antecedents that had the potential to add to their bottom line. This suggests that it is necessary to institute different marketing tactics to attract the early adopting groups. In addition, significant differences in the importance of antecedents between participating and nonparticipating consumers and participating and nonparticipating merchants suggest that, over time, it may also be necessary to develop and use different marketing tactics for later adopters.     

The Determinants of Optimal Interchange Fees in Payment Systems

This paper presents a model of a card payment system as a two-sided market that allows for partial participation by heterogeneous consumers and merchants. Taking into account the strategic effects arising from competition between merchants, the model is used to characterize the optimal structure of fees between those charged to cardholders and those charged to merchants and, more specifically, the level of the interchange fee that banks charge each other. The results modify the existing characterizations of the interchange fee, and explain the source of potential deviations between the privately and socially optimal level of the fee.     

AN EMPIRICAL ANALYSIS OF PAYMENT CARD USAGE*

I exploit a unique data set on the payment card industry to study issues associated with network effects and two‐sided markets. I show that consumers concentrate their spending on a single payment network (single‐homing), although many maintain unused cards that allow the ability to use multiple networks (multi‐homing). Further, I establish a regional correlation between consumer usage and merchant acceptance within the four major networks (Visa, Mastercard, American Express and Discover). This correlation is suggestive of the existence of a positive feedback loop between consumer usage and merchant acceptance.     

Reprint of: Platform competition in the tablet PC market: The effect of application quality

The tablet PC market is dominated by two platforms: iOS and Android. In this paper, we combine tablet-level data with data on the quality of the top 1000 mobile applications from these platforms and estimate a structural demand model. We exploit variations over three periods and five European countries to find whether the application quality affects tablet demand. We then run two counterfactuals. The first counterfactual suggests that an improvement in application quality benefits the tablet producers on that platform with a more pronounced effect on the demand for Android-based tablets. The second counterfactual discusses the policy of leveling the app quality of the two stores. It shows that such a policy favors the tablet producers adopting the lowest quality app store (Google) and stimulates the adoption of tablet PCs. This generates consumer surplus in tablet demand.     

Platform competition in the tablet PC market: The effect of application quality

The tablet PC market is dominated by two platforms: iOS and Android. In this paper, we combine tablet-level data with data on the quality of the top 1000 mobile applications from these platforms and estimate a structural demand model. We exploit variations over three periods and five European countries to find whether the application quality affects tablet demand. We then run two counterfactuals. The first counterfactual suggests that an improvement in application quality benefits the tablet producers on that platform with a more pronounced effect on the demand for Android-based tablets. The second counterfactual discusses the policy of leveling the app quality of the two stores. It shows that such a policy favors the tablet producers adopting the lowest quality app store (Google) and stimulates the adoption of tablet PCs. This generates consumer surplus in tablet demand.     

Credit Unions: Fringe Suppliers or Cournot Competitors?

Recent work has demonstrated the competitive relationship between credit unions and banks in consumer financial services. One issue underlying the nature of competition between the two, however, concerns the most appropriate way to model their interactions.Two possible approaches are the dominant-firm price-leadership model and the generalized Cournot model. In the former model, credit unions act as fringe suppliers who are price-takers in a homogeneous product market. In the latter, they possess (limited) market power. Oneway to distinguish the two is by examining the impact of credit union market shares on their pricing, as the two models imply differing effects. Our results are more consistent with the ``credit unions as fringe suppliers' view. Using a pooled cross-section time seriesof 77 small local consumer lending markets throughout the U.S., each with 10 observations over 5 years, the focus is on a loan product ex ante thought to be sold in local markets, unsecured (non-credit card) loans. For this product, increasing credit union market sharesreduces credit union loan rates, consistent with a fringe supplier hypothesis.     

Pricing with Consumer Switching Costs: Evidence from the Credit Card Market

The credit card market is a natural setting for investigating the relationship between pricing and consumer switching costs. I find, using a detailed panel of credit card issuers, that switching costs are an important influence on pricing for commercial banks. The results are stronger for commercial banks with risky customer bases, suggesting that there is a relationship between default and switching costs. Switching costs appear to have almost no influence on pricing for credit unions, a result that is consistent with their status as not–for–profit entities.     

Effects of FTA Provisions on the Market Structure of the Korean Automobile Industry

The Korean passenger car market is dominated by a few domestic producers. In this paper, we investigate whether this market structure is the result of import tariffs and taxes that penalize foreign manufacturers. Our counterfactual simulation under two FTA scenarios shows that the market shares of imported and domestic cars show minimal adjustments, suggesting that import tariffs and taxes may not explain the lack of penetration of import cars in Korea. We predict changes in consumer surplus and discuss the policy implications of our findings.     

基于非线性效应的第三方支付平台兼容性研究

本文在设定网络外部性效用为符合梅特卡夫法则的非线性函数条件下，构建双寡头支付平台兼容和不兼容两种情况下的优化模型，探讨双寡头支付平台的兼容性策略选择问题。研究发现，规模对称的双寡头支付平台兼容之后，两家支付平台的利润、消费者效用及社会福利均会增加；银联成立后中国工商银行的银行卡业务利润得以提升也验证了模型结果。建议政府借鉴银联的成功经验，使银联在线成为各支付平台的聚合型平台，提高第三方支付清算系统的效率。     

Platform Competition With Cash-Back Rebates Under No Surcharge Rules

We analyze competing strategic platforms setting fees to a local monopolist merchant and cash-back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival's spread. This incentive yields non-existence of a pure strategy equilibrium in many natural environments. In some circumstances, a mixed strategy equilibrium exists where platforms choose fee structures that induce merchants to accept only one platform with equal probability, a form of monopolistic market allocation.     

An Empirical Analysis of UK Credit Card Pricing

Previous studies show that the credit card market is imperfectly competitive. Using a reduced form hedonic model, the current paper demonstrates a relationship between credit card interest rates and product differentiation characteristics. The characteristics capture issuers’ attempts to: (1) screen/separate customers with different default risk characteristics and (2) better meet heterogeneous customer preferences. The results are consistent with risk-based pricing and monopolistic competition in the credit card market.     

Credit Availability and the Structure of the Homebuilding Industry

We investigate the role of disruptions to the structure of the homebuilding industry due to fluctuations in the availability of bank credit. We find a sustained decline in the large private homebuilder market share series over the period from 1988 to 1993 when many banks with deteriorated health reduced their lending in order to raise capital ratios. Regression analysis at the metropolitan statistical area level supports the hypothesis that, in areas where banks were less well capitalized and had more problem construction loans, the market shares of large private homebuilders that relied primarily on bank credit to finance their production suffered at the expense of the public homebuilders that had better access to external funds, in large part due to their direct access to public capital markets.     

The Influence of Credit Union and Savings and Loan Competition on Bank Deposit Rates in Idaho and Montana

This study examines the effect of S & L and credit union competition on bank behaviorin Idaho and Montana. A structure-performance OLSmodel is used to estimate bank interest rates oncertain deposits. Two key independent variables arelocal market share of credit unions and S & Ldeposits. Overall, previous studies found littleevidence that thrift competition affects bankperformance. We found some evidence that thriftcompetition, especially from credit unions, resultsin higher interest rates for bank CDs. Theseresults have policy implications as banking groupscurrently seek to restrict credit union competition.     

An empirical analysis of competitive nonlinear pricing

We estimate a model of competitive nonlinear pricing with multidimensional preference heterogeneity using individual level data on advertisements bought by local businesses (e.g., doctors, electricians) from two Yellow Page Directories in one U.S. city-market. Variation in individual choices and payments allows us to identify the joint density of preferences, marginal costs of publishing and common utility parameters. Our estimates suggest substantial welfare loss due to asymmetric information. Comparing duopoly outcomes with (counterfactual) monopoly outcomes, we find that with less competition (i) producer surplus increases substantially; (ii) more “low-type” consumers are excluded; (iii) product variety increases, but benefits accrue only to the “high-type” consumers; (iv) total consumer surplus decreases; (v) but its distribution, across consumers, does not change.