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Sales tax is generally not included in the advertised price quoted to consumers in the United States. In contrast, value added taxes (VAT) are embedded into the price in most other countries. This article investigates how the two different pricing structures and consumers' decision-making process affect the intensity of price competition. The two pricing structures yield identical market outcomes with fast-computing consumers who are willing and able to recompute the exact sales tax each time there is a price change. With slow-computing consumers, prices and profits are higher when sellers quote and compete in prices without sales tax. In this case, a model extension with two-stage decision making shows that the entire tax burden is shifted to the consumers when they completely ignore sales tax during their initial search. Key words: price competition, price comparisons, sales tax, value added tax, fast and slow-computing consumers, mental accounting, inattention, consumer decision making JEL classification: D43, H29, L13, M3, 1. Introduction The last stage in the supply chain of any product or service is the final sale to the consumer. Governments levy a tax on this final transaction which [...]

The emergence of cashless stores has led several cities and states to ban such stores. This article investigates this issue by characterizing consumers who pay cash for in-person purchases and consumers who do not have credit or debit cards. Using a random utility model, I estimate 1.3 to 30.9 percentage drop in average per-payment consumer surplus if all stores were to become cashless and when utility is measured by the cost of making a payment, security, and convenience. The conclusion provides a discussion of alternatives to cash for in-person purchases that may be needed before all brick-and- mortar stores become cashless. JEL classification: D9, E42 Key words: cashless stores, banning cashless stores, consumer payment choice, in-person purchases, alternatives to cash, random utility, 1. Introduction Imagine entering a store, picking up a few items, and then existing the store without going through a checkout counter. No, this isn't necessarily a theft, as a [...]

This article identifies transaction values beyond which consumers switch from paying cash to paying with cards. In particular, the sharpest changes in the share of cash payments occur at $20 and $40, which coincide with the observation that most ATMs in the United States dispense multiples of $20 bills. The analytical part proposes algebraic formulations of consumer preferences that support this type of behavior. Whereas causality cannot be established, this research shows that currency and ATM bill denominations influence consumers' choice of which payment instrument to use for in-person purchases. JEL classification: D9, E42 Key words: currency denomination, automated teller machines, ATM, consumer payment choice, payment methods, in-person purchases, 1. Introduction Data collected on how consumers pay in the United States reveal two important characteristics of cash payments for in-person purchases: First, the use of cash declines with the [...]

We analyze competition for experienced workers among wage-setting firms. The firms can design poaching offers with higher wages to workers who switch from rivals relative to wages paid to their own existing employees. We evaluate the profit and welfare effects of anti-poaching agreements that eliminate poaching offers as a recruiting method. Anti-poaching agreements increase industry profits, whereas workers are made worse off. We show that the effects of anti-poaching agreements on total welfare are determined by the magnitude of workers' switching costs and the productivity change associated with switching employers. (JEL L41, L40, J42), I. INTRODUCTION Employees are often viewed as the most important asset of a firm. Consequently, each employer has an incentive to limit the outflow of productive employees. An employer may [...]

Rewards that consumers receive on credit card payments influence their payment choice. They are not taxed but merchants deduct card fees from their taxes. This article analyzes the tax effects in a model where card companies set interchange fees, merchants decide whether to accept card payments, and consumers choose their preferred payment method. I find that card companies raise interchange fees when merchants are allowed to deduct these fees from their taxes. Taxing consumers' card rewards reduces interchange fees. The optimal distribution of cash and card payments cannot be supported without a policy combination of taxes and regulated interchange fees. [ABSTRACT FROM AUTHOR]

Using a representative sample of the U.S. adult population, we analyze which payment methods consumers use to pay other consumers (p2p) and how these choices depend on transaction and demographic characteristics. We additionally construct a random matching model of consumers with diverse preferences over the use of different payment methods for p2p payments. The random matching model is calibrated to the share of p2p payments made with cash, paper check, and electronic technologies observed from 2015 to 2019. We find about two thirds of consumers have a first p2p payment preference of cash. The remaining one third rank checks first. Approximately 93 percent of consumers rank electronic technologies second. Our empirical analysis finds that the most significant factors in determining the payment method used are the transaction value and the age and education of the payer. JEL classification: D9, E42 Key words: consumer payment choice, person-to-person payments, electronic payments, mixed logit, machine learning, random matching, Working Paper 2021-11 February 2021 1. Introduction Consider the following scenarios: A friend purchased something for you and now she must be repaid. Or maybe you want to give her [...]