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Credit Card Rates and Consumer Switch: New Evidence

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  • Omar A. Abdelrahman

Abstract

This paper investigates the underlying determinants of consumer¡¯s choices regarding switching credit-card balances. To estimate the likelihood that consumers switch credit cards, two logit models are estimated. Using data from the Consumer Finance Monthly (CFM) of The Ohio State University, the author finds that at the conventional 5 percent level of significance, the following variables have significance: old interest rate, new interest rate, duration of the introductory rate, balances, number of credit cards, homeownership, and age. As expected, interest rates, balances, the duration of new introductory offer rates, and homeownership have the greatest influence on why or why not people switch credit cards. The findings are consistent with the view that consumers make rational decisions in the credit card market, challenging Ausubel¡¯s (1991) argument of credit card consumer irrationality and Calem and Mester¡¯s (1995) empirical finding that credit card rates are sticky because consumers are irresponsive to rate cuts.

Suggested Citation

  • Omar A. Abdelrahman, 2016. "Credit Card Rates and Consumer Switch: New Evidence," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 95-105, December.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:12:p:95-105
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    References listed on IDEAS

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    More about this item

    Keywords

    consumer search; credit cards; economic theory; home ownership; interest rate; logit model; survey data; switching costs;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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