Non-Price Competition in Credit Card Markets: Evidence from an Emerging Economy
Guzin Akin (),
Gazi Kara () and
Levent Yildiran ()
No 2, 2009 Meeting Papers from Society for Economic Dynamics
Credit card rates have been shown to be very high and non-responsive to the changes in the costs of funds. The failure of price competition led to a shift of interests from price to non-price competition in these markets. Credit card issuers create switching costs for their customers by providing non-price benefits. These benefits are either direct benefits that depend on credit card usage or indirect benefits that arise from the convenience and quality of the general services of the issuer bank. This paper empirically investigates the nature of non-price competition in the Turkish credit card market using panel data, introducing the first study of this kind for an emerging market. As the main result, a significant and robust positive relationship between switching costs and credit card interest rates is obtained, confirming that as non-price benefits increase, banks charge higher credit card interest rates to their customers.
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed009:2
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