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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.

Suggested Citation

  • Kerr, Sougata & Dunn, Lucia, 2008. "Consumer Search Behavior in the Changing Credit Card Market," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 345-353.
  • Handle: RePEc:bes:jnlbes:v:26:y:2008:p:345-353

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    References listed on IDEAS

    1. 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.
    2. 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.
    3. Sandra Black & Donald Morgan, 1998. "Risk and the democratization of credit cards," Research Paper 9815, Federal Reserve Bank of New York.
    4. Mallar, Charles D, 1977. "The Estimation of Simultaneous Probability Models," Econometrica, Econometric Society, vol. 45(7), pages 1717-1722, October.
    5. 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.
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    Cited by:

    1. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," NBER Working Papers 13191, National Bureau of Economic Research, Inc.
    2. Tufan Ekici & Lucia Dunn, 2010. "Credit card debt and consumption: evidence from household-level data," Applied Economics, Taylor & Francis Journals, vol. 42(4), pages 455-462.
    3. 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.
    4. 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.
    5. Dellande, Stephanie & Gilly, Mary C. & Graham, John L., 2016. "Managing consumer debt: Culture, compliance, and completion," Journal of Business Research, Elsevier, vol. 69(7), pages 2594-2602.
    6. 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.
    7. Cheng, X. & Degryse, H.A., 2010. "Information Sharing and Credit Rationing : Evidence from the Introduction of a Public Credit Registry," Discussion Paper 2010-34S, Tilburg University, Center for Economic Research.
    8. Calem, Paul S. & Gordy, Michael B. & Mester, Loretta J., 2006. "Switching costs and adverse selection in the market for credit cards: New evidence," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1653-1685, June.
    9. 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.
    10. Sumit Agarwal & John C Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," Levine's Working Paper Archive 122247000000002028, David K. Levine.

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