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Credit Card Competition and Naive Hyperbolic Consumers

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  • Elif Incekara-Hafalir

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Abstract

I explain the credit card market’s observed systematic pricing patterns by examining time-inconsistent consumers. I find that time inconsistency steers the competition from long-term borrowing contingent prices to short-term noncontingent ones. This pattern occurs because the consumer in the contracting period underestimates the future charges, and therefore pays attention only to short-term price elements, such as annual fees. The consumer’s risk of default also plays a role in determining who gets which contract. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Elif Incekara-Hafalir, 2015. "Credit Card Competition and Naive Hyperbolic Consumers," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(2), pages 153-175, April.
  • Handle: RePEc:kap:jfsres:v:47:y:2015:i:2:p:153-175
    DOI: 10.1007/s10693-014-0208-4
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:jfsres:v:52:y:2017:i:3:d:10.1007_s10693-016-0257-y is not listed on IDEAS
    2. Paul Heidhues & Botond Koszegi, 2010. "Exploiting Naivete about Self-Control in the Credit Market," American Economic Review, American Economic Association, vol. 100(5), pages 2279-2303, December.
    3. Paul S. Calem & Julapa Jagtiani & William W. Lang, 2017. "Foreclosure Delay and Consumer Credit Performance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 52(3), pages 225-251, December.

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