They don't, really, as long as they're not disadvantaged compared to the competition. The people who are getting screwed are people who pay cash or use cards without rewards programs.

Oh...I assure you they do! Why? Because these fees come out of profits.

Merchants will charge more when profits drop. None of this is coming out of profits. They only time it comes out of profits is when competitors have some advantage that prevents the merchant from passing increases on to the customer.

If raising prices increase profits, then you're doing prices wrong! Raise prices!

The key is whether or not everyone else has to raise prices too.

Demand is elastic, usually.

Raising your price leads to less sales.