For nearly a decade, MasterCard has run a successful ad campaign that touts the benefits of its cards as “Priceless.” But this is hardly the case. Merchants see the price tag for payment systems, and credit cards are expensive as payment systems go. On average, credit card transactions cost American merchants six times as much as cash transactions and twice as much as checks or PIN-based debit cards.
But these are only the average costs of credit cards. Some credit cards cost merchants much more than others. Merchants’ costs of accepting credit cards vary tremendously among and within brands. Credit cards with rewards programs cost more for merchants to accept than cards without rewards. Similarly, corporate cards cost merchants more than consumer cards. A transaction on a rewards card or a corporate card can cost a merchant twice as much as the same transaction on a regular consumer card. Thus, merchants fund rewards and corporate card programs, but see no marginal benefit from having accepted a rewards card or corporate card instead of a regular nonrewards consumer credit card.
To properly understand advertising or to learn even its rudiments one must start with the right conception. Advertising is salesmanship. Its principles are the principles of salesmanship. Successes and failures in both lines are due to like causes. Thus every advertising question should be answered by the salesman's standards.
Let us emphasize that point. The only purpose of advertising is to make sales. It is profitable or unprofitable according to its actual sales.
It is not for general effect. It is not to keep your name before the people. It is not primarily to aid your other salesmen. Treat it as a salesman. Force it to justify itself. Compare it with other salesmen. Figure its cost and result. Accept no excuses which good salesmen do not make. Then you will not go far wrong.
The difference is only in degree. Advertising is multiplied salesmanship. It may appeal to thousands while the salesman talks to one. It involves a corresponding cost. Some people spend $10 per word on an average advertisement. Therefore every ad should be a super-salesman.
The recent debt crisis on Wall Street illustrates an intertwined relationship between market liquidity and financial firmsocredit risk. On one hand, as financial firmsocredit risk worsens, they are reluctant/unable to provide market liquidity; on the other, as market liquidity deteriorates, financial firmsodebt crisis also intensifies.1 Understanding this intertwined relationship is probably one of the most important research topics confronting the finance literature. This paper aims to analyze the second part of this relationships how does deteriorating market liquidity intensify a debt crisis?
The extant literature has proposed several mechanisms to this question. Marketilliquidity, together with the diffi culty of creditors in coordinating their rollover decisions of a firmos short'term debt, could lead to runs on financial firms, e.g., He and Xiong (2009) and Morris and Shin (2009). Deteriorating liquidity and rising volatility also motivate creditors to increase the required margins on their collateralized loans to the firms, which in turn could force the firms to liquidate their positions in illiquid markets, e.g., Brunnermeier and Pedersen (2009), Acharya, Gale, and Yorulmzer (2009), and Shleifer and Vishny (2009). These mechanisms all rely on an implicit assumption that firms are constrained from raising more equity during financial distresses. However, this assumption seems at odds with the observation that in the current crisis many financial firms paid a substantial amount of dividends despite their financial distresses and the angry creditors.2 This indicates an intricate interaction between debt and equity holders, which is missing from the aforementioned theories.
