According to an article in the San Francisco Chronicle, some gas stations in San Francisco encourage customers to pay in cash rather than credit card by posting a lower "cash price" and a higher "credit price". They justify this dual pricing on the grounds that credit card companies levy transaction fees on gas stations for customers who pay using credit cards. Credit card companies, on the other hand, oppose the use of the terms "cash price" and "credit price". They want the price paid with credit cards to be a station's "base price", and for the cash price to represent a discount from that rate. In other words, they prefer the use of "base price" and "discounts for cash". In reality, in terms of opportunity cost, there is no difference between having to pay a higher "credit price" and not receiving a discount for using a credit card, so why are credit card companies pushing for a change in the usage of terms?
A) The credit card companies' argument is sound; California law prohibits surcharges from being tacked onto retail prices for use of plastic and therefore, the dual pricing system is price discrimination and is illegal.
B) Credit card companies want people to have a clear idea of the payment options: if using cash the price is lower but the opportunity cost is higher and if they use credit cards, the price is higher but the opportunity cost is lower because of the convenience of credit cards.
C) Credit card companies recognize that consumers are more sensitive to monetary opportunity costs than to non-monetary opportunity costs. The term "credit price" suggests that consumers pay a surcharge for using their credit card and will see this as an increase in the monetary opportunity cost, but not receiving a discount when using credit cards is a non-monetary opportunity cost and is therefore likely to be ignored by consumers.
D) Credit card companies recognize that consumers are sensitive to hidden costs. The opportunity cost of using cash is generally higher than using credit cards because credit cards allow people to consume goods and services that they cannot pay for at present. By posting a lower cash price, gas stations are not revealing the true opportunity cost of the item.
Correct Answer:
Verified
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