Non-price competition in credit card markets through bundling and bank level benefits

Akin, Guzin Gulsun and Aysan, Ahmet Faruk and Kara, Gazi Ishak and Yildiran, Levent (2008): Non-price competition in credit card markets through bundling and bank level benefits.

Abstract

The attempts to explain the high and sticky credit card rates have given rise to a vast literature on credit card markets. This paper endeavors to explain the rates in the Turkish market using measures of non-price competition. In this market, issuers compete monopolistically by differentiating their credit card products. The fact that credit cards and all other banking services are perceived as a bundle by consumers allows banks to deploy also bank level characteristics to differentiate their credit cards. Thus, credit card rates are expected to be affected by the features and service quality of banks. Panel data estimations also control for various costs associated with credit card lending. The results show significant and robust effects of the non-price competition variables on credit card rates.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit Cards, Monopolistic Competition, Product Differentiation, Bundling, Bank Pricing Behavior, Regulation
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

References

Ausubel, L.M. (1991). “The failure of competition in the credit card market”, American Economic Review, 81: 50-81.

Akin, G. G., A. F. Aysan, G. I. Kara and L. Yildiran (2009a), “The failure of price competition in the Turkish credit card market,” mimeo, Bogazici University

Akin, G. G., A. F. Aysan, G. I. Kara and L. Yildiran (2009b), “A Nationwide Survey on Credit Card Usage,” mimeo, Bogazici University

Aysan, A. F., and N. A. Müslim (2006). “Assessing the Competition in the Credit Card Market in Turkey: A New Empirical Evidence”, International Management Development Research Yearbook, K. Erdener & H. Talha (eds.), Vol.15, International Management Development Press, Hummelstown, Pennsylvania, USA.

Aysan, A.F., and L.Yildiz (2007).“The Regulation of the Credit Card Market in Turkey,”The International Research Journal of Finance and Economics, 2(11)

Berger, Allen and Timothy Hannan (1989). "The Price-Concentration Relationship in Banking,” Review of Economics and Statistics, 71:291-99.

Calem, Paul S. and Loretta J. Mester (1995). “Consumer Behavior and the Stickiness of Credit-Card Interest Rates,” The American Economic Review, 85(9):1327-1336.

Hannan, Timothy (1991). “Foundations of the Structure-Conduct-Performance Paradigm in Banking”, Journal of Money, Credit and Banking, 23(1):68-84.

Interbank Card Center (2008). Card Monitor.

Mester, L.J. (1994). “Why are credit card rates sticky?” Economic Theory, 4, 505-30

Nash, R.C and J.F.Sinkey (1997). “On competition, risk and hidden assets in the market for bank credit cards” Journal of Banking and Finance, 21, 89-112

Neubergen, J. A. and Zimmerman, G. C. (1991). “Bank pricing of retail deposit accounts and the California rate mystery,” Economic Review, Federal Reserve Bank of San Francisco.

Park, S. (2004). “Consumer rationality and credit card pricing: an explanation based on the option value of credit cards lines” Managerial and Decision Economics, 25,

Shaffer, S. and L. Thomas (2007). “A Reassessment of Market Power Among Credit Card Banks”, Applied Financial Economics, 17:755-767.

Stango, V. (2000). “Competition and Pricing in the Credit Card Market”, The Review of Economics and Statistics, 82(3): 499-508.

Stango, V. (2002). “Pricing with Consumer Switching Costs: Evidence from the Credit Card Market”, Journal of Industrial Economics, December.