CONSUMER PREFERENCES AND REGULATIONS IN CREDIT CARD MARKETS: EVIDENCE FROM TURKEY

G. Gulsun Akin (), Ahmet Faruk Aysan (), Ezgi Özer () and Levent Yildiran
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G. Gulsun Akin: Department of Economics, Bogazici University, Bebek, Istanbul, Turkey
Ahmet Faruk Aysan: Department of Economics, Hamad Bin Khalifa University, Qatar
Ezgi Özer: Department of Economics, Bogazici University, Bebek, Istanbul, Turkey
Levent Yildiran: Department of Economics, Bogazici University, Bebek, Istanbul, Turkey

The Singapore Economic Review (SER), 2022, vol. 67, issue 02, 849-875

Abstract: In this paper, we analyze the demand side of the credit card market. Using unique survey data and a discrete choice model, we uncover consumer preferences for all price and nonprice features of credit cards. Our results provide evidence for an alternative explanation for the credit card pricing puzzles. We show that consumers view credit cards as highly differentiated products with both bank-level and card-level nonprice features. When selecting their credit cards, they predominantly prioritize these nonprice features over prices. Although private banks charge higher prices for their credit card services than other banks, the majority of consumers choose them as issuers due to their bank-level and card-level nonprice features. Consumers who prioritize prices tend to choose the credit cards of participation or public banks. Widespread branch/automated teller machine networks as bank-level features and installments, bonuses/rewards/miles and the prestige of the card as card-level features are particularly effective in consumers’ decisions to choose private banks as issuers. Such strong preferences for nonprice features seem to furnish private banks with market power. Hence, we argue that underlying issuers’ market power is also this differentiated nature of credit cards, for which regulatory measures are not self-evident.

Keywords: Credit card pricing puzzles; discrete choice models; product differentiation; bundling; salience; market failures (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0217590821500764

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