[kyllo]

This is true in most cases, but merchants have a lot of tricks they use to try to reduce the amount of credit card interchange fees they pay. A lot of businesses actually do charge a "convenience fee" for using a credit card, or offer a discount for paying in cash, or they set a minimum purchase amount at which they will accept a credit card, etc. A lot of businesses also flat out refuse to accept cards like AMEX and Discover because of their higher interchange fees.

It would be interesting to see how this equilibrium might change if CC companies tried to increase interchange fees across the board. I think they would see a lot of resistance from merchants and possibly even government scrutiny and lawsuits. Don't forget that the CC companies have to compete with each other, and cannot collude to raise interchange fees.

Anyway, my point was not that higher interchange fees wouldn't get passed on to consumers somehow, it was more that if most cardholders stopped carrying a balance and paid much less interest to CC companies, and CC companies then increased their interchange fees to try to compensate for the decline in interest revenue, consumers as a whole might still be better off than they are now. There's more than one variable in the equation here, and right now credit card interest is probably a much bigger cost to consumers in the economy as a whole, than interchange fees are.