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Non-Price Competition in Credit Card Markets Through Bundling and Bank Level Benefits

  • G. Gulsun Akin

    ()

    (Bogazici University)

  • Ahmet Faruk Aysan
  • Gazi Ishak Kara
  • Levent Yildiran

Attempts to explain high and sticky credit card rates have given rise to a vast literature on credit card markets. This paper endeavors to explain the rates in the Turkish market using measures of non-price competition. In this market, issuers compete monopolistically by differentiating their credit card products. The fact that credit cards and all other banking services are perceived as a bundle by consumers allows banks to deploy also bank level characteristics to differentiate their credit cards. Thus, credit card rates are expected to be affected by the features and service quality of banks. Panel data estimations also control various costs associated with credit card lending. The results show significant and robust effects of the non-price competition variables on credit card rates.

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Paper provided by Economic Research Forum in its series Working Papers with number 562.

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Length: 17 pages
Date of creation: Oct 2010
Date of revision: Oct 2010
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:562
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  1. Timothy H. Hannan, 1989. "Foundations of the structure-conduct-performance paradigm," Finance and Economics Discussion Series 83, Board of Governors of the Federal Reserve System (U.S.).
  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. 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.
  4. Stango, Victor, 2002. "Pricing with Consumer Switching Costs: Evidence from the Credit Card Market," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 475-92, December.
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