Strategic Responses to Regulatory Threat in the Credit Card Market
Models of endogenous regulatory threat suggest that firms may cut prices in order to ease a threat of regulation. I test the implications of these models using stock market data from an episode of regulatory threat in the credit card market. The data show that the initial threat led to negative abnormal returns for a portfolio of credit card issuers. Consistent with the regulatory threat hypothesis, price cuts announced after the threat led to abnormal returns that are significantly more positive than those following similar cuts outside the period of regulatory threat. This pattern exists not only for those issuers announcing cuts but also for their rivals, which suggests that the cuts reduced an industry-wide threat of regulation. Factors that proxy for issuers' exposure to and influence on the probability of regulation affect the size of these returns, which provides corroborative evidence in favor of the regulatory threat hypothesis.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Konar, Shameek & Cohen, Mark A., 1997. "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 109-124, January.
- Maxwell, John W & Lyon, Thomas P & Hackett, Steven C, 2000.
"Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism,"
Journal of Law and Economics,
University of Chicago Press, vol. 43(2), pages 583-617, October.
- John W. Maxwell & Thomas P Lyon & Steven C.. Hackett, 1995. "Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism," University of Chicago - George G. Stigler Center for Study of Economy and State 122, Chicago - Center for Study of Economy and State.
- Robin A. Prager, 1989. "Using Stock Price Data to Measure the Effects of Regulation: The Interstate Commerce Act and the Railroad Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 280-290, Summer.
- Pirrong, Stephen Craig, 1995. "The Self-Regulation of Commodity Exchanges: The Case of Market Manipulation," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 141-206, April.
- Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
- Amihai Glazer & Henry McMillan, 1992. "Pricing by the Firm Under Regulatory Threat," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 1089-1099.
- Nancy L. Rose, 1985. "The Incidence of Regulatory Rents in the Motor Carrier Industry," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 299-318, Autumn.
- Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
- Victor Stango, 2000. "Competition And Pricing In The Credit Card Market," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 499-508, August.
- 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.
- A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
- Shaffer, Sherrill, 1999. "The Competitive Impact of Disclosure Requirements in the Credit Card Industry," Journal of Regulatory Economics, Springer, vol. 15(2), pages 183-98, March.
- Arora Seema & Cason Timothy N., 1995. "An Experiment in Voluntary Environmental Regulation: Participation in EPA's 33/50 Program," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 271-286, May.
- George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:y:2003:v:46:i:2:p:427-52. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.