Again, I'm not asking about what's fair or what you expect. I'm asking about what YOU are willing to pay.
Fair enough! I'd be willing to pay no more than 100 BTC, but 6 times out of 10 I'd pay via USD over BTC if given the option. Why? Because my income is in USD. Every bitcoin I own was converted from USDm -- which is a non-trivial process at the moment.If you are willing to pay a bit more to have the ease of using it or to avoid converting to USD first, then that might be ok.
I found this statement interesting. I didn't understand why anyone would elect to pay more than 100 BTC. Then I realized that this makes sense for bitcoin earners -- consumers who gain bitcoins as income (ie miners). Bitcoin earners may be willing to pay a premium for the privilege of using BTC because it saves them from converting to USD or other currencies.If you believe the value is going up, so you don't want to spend unless you are getting a steep discount, I'm curious.
Not exactly. I'm looking for a discount (is 5% considered "steep"?) because I'm the flipside of a bitcoin earner; I'm a bitcoin buyer. If bitcoin earners are willing to pay more for convenience, then bitcoin buyers are willing to pay less for inconvenience. The earner can avoid exchanging currency by paying in BTC, but the buyer has already jumped through a few hoops to pay with BTC.So as a merchant, you might ask yourself, "Are my target consumers predominantly bitcoin eaners (miners and other bitcoin merchants) or bitcoin buyers (everyone else)?"
I don't think it's safe to assume it's cheaper at all. They need to convert them back to USD. This is currently expensive.
Really? I agree that converting bitcoins to USD is non-trivial, but is it really expensive? CoinCard will buy BTC at market price for a transaction fee of 1.5% plus $1. One of the cool things about bitcoins is that there are very few barriers to entry. You don't have to be a Wall Street firm to set up an account on Mt Gox and convert bitcoins into USD at market price (0.65% transaction fee). There is a standing order on bitcoin-otc to buy MTGOX USD for 0.99 in return for Dwolla (1% fee). With a little effort, a merchant could convert BTC to USD at market price and pay 1.65% in conversion fees to get it into his bank account whilst building a good reputation on the web-of-trust.I've also seen many users on this forum advocate the importance of setting up local bitcoin exchanges. A particularly motivated entrepreneur could elect to sell bitcoins face-to-face in his local community and convert BTC to USD at higher than market price. Bitcoin.local was set up for this very reason. Not only can a merchant convert bitcoins to USD cheaply (essentially a negative exchange fee), but he's also helping bitcoins get into the hands of more potential buyers.
Would I sacrifice my profit margin to avoid fees? No. Fees are a cost of business. If I can reduce costs, I'll be happy about it. Cutting out one fee to end up making less money doesn't make any sense for a business.
You're right! It doesn't make any sense to sacrifice profits to avoid fees. What I meant to say was, "Would you sacrifice a higher cost (credit card fees) to pay a lower cost (conversion fees)?" My assumption is that converting bitcoins to USD is cheaper than paying Mastercard and Visa. If that assumption is right, wouldn't it make sense for merchants to pass on some of their savings to their customers? If that assumption is wrong, then bitcoins are not a viable alternative for merchants to do business (this seems to be your forgone conclusion).Seeing the long term potential? What does that mean?
"Bastard" is a poll choice? What does that mean? 
What I failed to convey was that merchants who accept bitcoins believe that BTC are a viable alternative to other payment methods. At any given point, a certain amount of their capital is locked up in bitcoins. Like you said, some of their bitcoins will have to be converted quickly to pay expenses, but if they're making a profit they can afford not to convert everything into USD. Bitcoins are undervalued at 1 BTC per 1 USD exchange rate. As a merchant builds up profits in bitcoins they should be expected to gradually gain value in relation to traditional currencies like the dollar. This is long-term potential.
If you are a merchant who believe that the price will be up, just buy BTC instead of selling stuff in them.
Didn't you just say it's expensive to convert between USD and BTC? If bitcoins are a better way of doing business, then they will gain strength over USD over time. In that case, it's better to be a bitcoin earner rather than a bitcoin buyer.As of now, I don't see any reason for a merchant to want to accept BTC, other than being an evangelist or true believer in BTC. I was hoping I was wrong.
I hope you're wrong, too! Merchants who accept bitcoins right now are "true believers" in some sense, but I don't think any of them would take bitcoins if they weren't in some way better than other payment methods (by better I don't mean in the "screw the Fed" sense or the "open source is cool" sense, but in the "I can avoid some PayPal hassle" sense). Your fear seems to be that it's expensive to convert bitcoins into traditional currency. I think I've outlined some good counter-arguments to that. But I think what we really need is for some actual Bitcoin merchants to weigh in on this thread and explain why they chose to accept bitcoins and explain how that's worked out for them so far. 
