Tuesday, May 04, 2010

The Economic Naturalist: II

Credit cards in grocery stores.

According to a number of recent articles, e.g.


credit card fees cost stores a large amout of money, thus raising costs to the consumer.  The fees seem to be roughly 2-3% of the cost of the purchase.  While I was waiting in line at Whole Foods yesterday, an economic naturalist question came to mind.  Why don't stores offer discounts for users who pay in cash?  If the discount was less than 3%, this would increase the merchant's profit.

The convenience of credit cards is undeniable.  Lowering the price for cash purchases would give customers an incentive to pay in cash, thus increasing the amount of physical currency the store had to deal with.   This would make the store a better target for robbery, and thus raise the price for armored transport and security guards.  However, I think the main reason high throughput stores like grocery stores don't want cash is that it would also increase the amount of time each person was at the grocery line.  (I'm assuming it takes longer to sort cash and make change than to wait for the credit card authorization.)  Any gain from the cash would most likely be lost by the extra time everyone stands in line.  The longer lines would mean the store would have to spend more on employees to keep lines open, or risk frustrating their customers.

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