The Failure of Price Competition In The Turkish Credit Card Market

Akin, Guzin Gulsun and Aysan, Ahmet Faruk and Kara, Gazi Ishak and Yildiran, Levent (2008): The Failure of Price Competition In The Turkish Credit Card Market.

Abstract

The failure of competition and the consequent high and sticky interest rates in credit card markets have been the subject of a considerable amount of debate and research lately. This paper presents the first regression testing for the existence of price competition in a credit card market to be estimated free of dynamic panel bias using recent quarterly data from Turkey. The estimation reveals that even though the effect of the cost of funds on credit card rates is statistically significant, it is very weak. The paper thus provides empirical evidence for the failure of price competition in the Turkish credit card market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit Cards, Price Competition, System GMM, Banking
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; D - Microeconomics > D4 - Market Structure, Pricing, and Design; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance

References

Akin, G. G., A. F. Aysan, G. I. Kara and L. Yildiran (2009), “Non-price competition in credit card markets through bank level benefits,” mimeo, Bogazici University.

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

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, pp. 147–154, 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, Vol.2, No.11, pp. 141-154, 2007

Bond, S. (2002), “Dynamic Panel Data Models: A Guide to Micro Data Methods and Practice”, Institute for Fiscal Studies Working Paper 09/02, London.

Calem, P. and L. Mester (1995), “Consumer Behavior and the Stickiness of Credit-Card Interest Rates”, American Economic Review, 85: 1327-1336.

Calem, P., M. Gordy and L. Mester (2006), “Switching costs and adverse selection in the market for credit cards: New evidence”, Journal of Banking & Finance, 30: 1653–1685

Chakravorti, S. and W.R. Emmons (2003), “Who pays for credit cards?” Journal of Consumer Affairs, 37(2):208–230,

Hansen, L. (1982), “Large Sample Properties of Generalized Method Of Moments Estimators, Econometrica”, 50(3): 1029–54.

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

Stiglitz, J. E. and A. Weiss (1981), Credit Rationing in Markets with Imperfect Information, American Economic Review, June, 393-410.