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Improved Matching, Directed Search, and Bargaining in the Credit Card Market

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  • Gajendran Raveendranathan

    (McMaster University)

Abstract

I build a model of revolving credit in which consumers face idiosyncratic earnings risk, and credit card firms target consumers with credit offers. Upon a match, they bargain over borrowing limits and borrowing interest rates -- fixed for the duration of the match. Using the model, I show that improved matching between consumers and credit card firms quantitatively accounts for the rise in revolving credit and consumer bankruptcies in the U.S. I also provide empirical evidence consistent with the key features in my model: directed search and bargaining. The lifetime consumption gains from improved matching are substantially large (3.55 percent).

Suggested Citation

  • Gajendran Raveendranathan, 2018. "Improved Matching, Directed Search, and Bargaining in the Credit Card Market," 2018 Meeting Papers 112, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:112
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    References listed on IDEAS

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    1. Improved Matching, Directed Search, and Bargaining in the Credit Card Market
      by Christian Zimmermann in NEP-DGE blog on 2018-02-21 02:54:18

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    Cited by:

    1. Kyle F Herkenhoff, 2019. "The Impact of Consumer Credit Access on Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(6), pages 2605-2642.
    2. Kyle F. Herkenhoff & Gajendran Raveendranathan, 2019. "Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry," Working Papers 2019-071, Human Capital and Economic Opportunity Working Group.
    3. Exler, Florian & Tertilt, Michèle, 2020. "Consumer Debt and Default: A Macro Perspective," IZA Discussion Papers 12966, Institute of Labor Economics (IZA).
    4. Tertilt, Michèle & Exler, Florian, 2020. "Consumer Debt and Default: A Macroeconomic Perspective," CEPR Discussion Papers 14425, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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