Bank Competition and Consumer Search over Credit Card Interest Rates

Taehyung Kim, Lucia Dunn (dunn.4@osu.edu) and Gene E. Mumy

Economic Inquiry, 2005, vol. 43, issue 2, 344-353

Abstract: This article models bank competition facing consumers with different search incentives and finds that consumers with higher credit card balances have lower interest rates given their risk class due to their greater search effort. It also finds that a default history leads to higher interest rates. The equilibrium interest rate corresponding to risk type and motive (borrowing versus convenience/transactions) is derived theoretically, and the determinants of the interest rate are estimated using an original data set. Endogeneity of default is handled with a two-equation system.(JEL D14, D12, D11) Copyright 2005, Oxford University Press.

JEL-codes: D11 D12 D14 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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