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Credit cards let you externalize the cost, since merchants raise their prices to account for credit card fees, but raise their prices for everyone, not just cre

Credit cards let you externalize the cost, since merchants raise their prices to account for credit card fees, but raise their prices for everyone, not just credit card users. In other words, the cost of better consumer protections from credit cards is subsidised by those not using credit cards (and those who carry a CC balance and pay interest, but that's another matter). Alternatively, maybe practically everyone uses credit cards, so the "subsidy" is negligible, and everyone loses slightly on average. But then you'd lose even more if you didn't use a credit card and subsidised everyone else. It's basically a big version of the Prisoner's Dilemma.

philwelch 2y ago
Merchants can give cash discounts; many do. And there are also expenses to handling cash that credit cards eliminate: for instance, such as the need to securely transport large amounts of cash to and from a bank, the need to count the cash, and the extra labor of cashiers making change—a skill that many cashiers are simply borderline incapable of these days anyway.
- eru 2y ago
  Yes, but it's not a pure dilemma between American Express and cash. There are other ways to pay without cash and without American Express. I see a few explicit discounts (or surcharges) for different payment methods here and there, but mostly the system works by segregation: the cheaper suppliers with lower margins don't tend to accept the more expensive payment providers.
- buffington 2y ago
  I was about to say "hey, in most US states what you're saying is illegal" and realized I was letting that myth live in my head as if it were true. So, to be clear for anyone else with the same problem I had: Merchants in all US states can legally give cash discounts. In Connecticut and Massachusetts, it's illegal to add a surcharge for credit purchases.
eru 2y ago
You are right up to a point: but this analysis doesn't (fully) apply to American Express, exactly because it has such limited acceptance. I mostly don't shop at places that accept American Express, exactly because their prices are higher to pay for this cross-subsidy. Thus I don't pay for this cross subsidy.

philwelch 2y ago

Merchants can give cash discounts; many do. And there are also expenses to handling cash that credit cards eliminate: for instance, such as the need to securely transport large amounts of cash to and from a bank, the need to count the cash, and the extra labor of cashiers making change—a skill that many cashiers are simply borderline incapable of these days anyway.

eru 2y ago
Yes, but it's not a pure dilemma between American Express and cash. There are other ways to pay without cash and without American Express. I see a few explicit discounts (or surcharges) for different payment methods here and there, but mostly the system works by segregation: the cheaper suppliers with lower margins don't tend to accept the more expensive payment providers.
buffington 2y ago
I was about to say "hey, in most US states what you're saying is illegal" and realized I was letting that myth live in my head as if it were true. So, to be clear for anyone else with the same problem I had: Merchants in all US states can legally give cash discounts. In Connecticut and Massachusetts, it's illegal to add a surcharge for credit purchases.

eru 2y ago

You are right up to a point: but this analysis doesn't (fully) apply to American Express, exactly because it has such limited acceptance. I mostly don't shop at places that accept American Express, exactly because their prices are higher to pay for this cross-subsidy. Thus I don't pay for this cross subsidy.