Why Do Merchants Accept Credit Cards?
نویسندگان
چکیده
In this article, we investigate why merchants accept credit cards for payment despite the relatively high cost of processing these types of transactions. A two-period model is constructed to determine under what conditions a credit card equilibrium would exist. The results of the model indicate that when the cost of funds is not too high and when the merchant’s profit margin is sufficiently high, a credit card equilibrium exists. Consumers and the card issuer are strictly better off from credit card transactions. Merchants as a whole are worse off even though each merchant maximizes its expected profits. If merchants have bargaining power, they can capture some of the card-issuer’s rents.
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