Credit Card Competition and Naive Hyperbolic Consumers

Elif Incekara-Hafalir ()
Authors registered in the RePEc Author Service: Elif Incekara Hafalir ()

Journal of Financial Services Research, 2015, vol. 47, issue 2, 153-175

Abstract: I explain the credit card market’s observed systematic pricing patterns by examining time-inconsistent consumers. I find that time inconsistency steers the competition from long-term borrowing contingent prices to short-term noncontingent ones. This pattern occurs because the consumer in the contracting period underestimates the future charges, and therefore pays attention only to short-term price elements, such as annual fees. The consumer’s risk of default also plays a role in determining who gets which contract. Copyright Springer Science+Business Media New York 2015

Keywords: Credit card pricing; Time inconsistency; Competition (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10693-014-0208-4

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