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Consumer Search Behavior in the Changing Credit Card Market

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  • Lucia Dunn

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  • Sougata Kerr

Abstract

This article investigates whether search costs inhibit consumers from searching for lower credit card interest rates. The results provide evidence that the credit card search environment has changed since the mid-1990s. Using the 2001 Survey of Consumer Finances, we model consumers' propensity to search and their probability of being denied credit simultaneously and find that larger credit card balances induce cardholders to search more even though they face a higher probability of rejection. This result may be related to the high volume of direct solicitation, combined with disclosure requirements, which has lowered the cost of search to find lower interest rates.

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File URL: http://economics.sbs.ohio-state.edu/pdf/ldunn/wp02-03.pdf
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Bibliographic Info

Paper provided by Ohio State University, Department of Economics in its series Working Papers with number 02-03.

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Date of creation: Sep 2002
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Handle: RePEc:osu:osuewp:02-03

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References

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  1. Sandra Black & Donald Morgan, 1998. "Risk and the democratization of credit cards," Research Paper 9815, Federal Reserve Bank of New York.
  2. Sangkyun Park, 1997. "Option value of credit lines as an explanation of high credit card rates," Research Paper 9702, Federal Reserve Bank of New York.
  3. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April.
  4. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  5. Mallar, Charles D, 1977. "The Estimation of Simultaneous Probability Models," Econometrica, Econometric Society, vol. 45(7), pages 1717-22, October.
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Cited by:
  1. Victor Stango & Jonathan Zinman, 2013. "Borrowing High vs. Borrowing Higher: Sources and Consequences of Dispersion in Individual Borrowing Costs," NBER Working Papers 19069, National Bureau of Economic Research, Inc.
  2. Sumit Agarwal & John C Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," Levine's Bibliography 122247000000001752, UCLA Department of Economics.
  3. Lucia Dunn & Tufan Ekici, 2006. "Credit Card Debt and Consumption: Evidence from Household-Level Data," Working Papers 06-01, Ohio State University, Department of Economics.
  4. Paul S. Calem & Michael B. Gordy & Loretta J. Mester, 2005. "Switching costs and adverse selection in the market for credit cards: new evidence," Working Papers 05-16, Federal Reserve Bank of Philadelphia.
  5. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," NBER Working Papers 13822, National Bureau of Economic Research, Inc.
  6. Sougata Kerr & Lucia Dunn & Stephen Cosslett, 2004. "Do Banks Use Private Information from Consumer Accounts? Evidence of Relationship Lending in Credit Card Interest Rate Heterogeneity," Working Papers 04-08, Ohio State University, Department of Economics.
  7. Berg, Nathan & Kim, Jeong-Yoo, 2010. "Demand for Self Control: A model of Consumer Response to Programs and Products that Moderate Consumption," MPRA Paper 26593, University Library of Munich, Germany.

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