Revolving credit lines and targeted search

Gajendran Raveendranathan

Journal of Economic Dynamics and Control, 2020, vol. 118, issue C

Abstract: I propose a model of revolving credit lines and targeted search to analyze what accounts for the profitability of the U.S. credit card industry. My analyses lead to two main findings. First, the search friction has minimal impact on the level of profitability of the credit card industry. Most of the profitability is a result of the lender choosing the terms of contract. Second, improved information about consumers accounts for the fall in profitability since the 1980s. Consistent with the data, lenders respond to more information by increasing credit card limits and lowering markups.

Keywords: Revolving credit lines; Targeted search; Consumer bankruptcy (search for similar items in EconPapers)
JEL-codes: D14 D83 E21 E44 G21 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:118:y:2020:i:c:s0165188920301329

DOI: 10.1016/j.jedc.2020.103964

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