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Consumer Search Behavior in the Changing Credit Card Market

  • Kerr, Sougata
  • Dunn, Lucia

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://pubs.amstat.org/doi/abs/10.1198/073500107000000133
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Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 26 (2008)
Issue (Month): ()
Pages: 345-353

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Handle: RePEc:bes:jnlbes:v:26:y:2008:p:345-353
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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. Mallar, Charles D, 1977. "The Estimation of Simultaneous Probability Models," Econometrica, Econometric Society, vol. 45(7), pages 1717-22, October.
  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. 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.
  5. 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.
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