Regulatory interventions in consumer financial markets: the case of credit cards

Manolis Galenianos and Alessandro Gavazza

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We build a framework to understand the effects of regulatory interventions in creditmarkets, such as caps on interest rates. We focus on the credit card market, in whichwe observe U.S. consumers borrowing at high and very dispersed interest rates despitereceiving many credit card offers. Our framework includes twomain features to accountfor these patterns: the endogenous effort of examining offers and product differentiation.Our calibration suggests that most borrowers examine few ofthe offers they receive, andthereby forego cards with low interest rates and high non-price benefits. The calibratedmodel implies that interest-rate caps reduce credit supplyand significantly curb lenders’market power, thereby increasing consumer surplus. Moderate caps may yield largergains in consumer surplus than tighter ones.

JEL-codes: D14 D83 G28 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022-10-08
New Economics Papers: this item is included in nep-mac, nep-pay and nep-reg
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Citations: View citations in EconPapers (2)

Published in Journal of the European Economic Association, 8, October, 2022, 20(5), pp. 1897 - 1932. ISSN: 1542-4766

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http://eprints.lse.ac.uk/113612/ Open access version. (application/pdf)

Related works:
Journal Article: Regulatory Interventions in Consumer Financial Markets: The Case of Credit Cards (2022)
Working Paper: Regulatory Interventions in Consumer Financial Markets: The Case of Credit Cards (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:113612

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