IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Price ceilings as focal points for tacit collusion: evidence from credit cards

Listed author(s):
  • Christopher R. Knittel
  • Victor Stango

We test whether a non-binding price ceiling may serve as a focal point for tacit collusion. Our sample contains data from the credit card market during the 1980s; in the sample, most credit card issuers face a state-level interest rate ceiling, and well over half match their ceiling. Our empirical model explicitly allows for the possibility that ceilings may have been binding. The model yields evidence in favor of tacit collusion: a statistically significant proportion of issuers match their ceiling even though it is not binding. Within a state, tacit collusion is less likely as the ceiling rises, more likely as concentration or costs rise, and less likely in periods of high demand. We also find that entry into credit cards is higher where we find evidence of tacit collusion, and lower where we find evidence that a ceiling is binding. It appears that tacit collusion became less prevalent over the 1980s, as entry into credit cards surged nationwide. The results highlight a largely unconsidered adverse effect of price cap regulation.

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.

File URL:
Download Restriction: no

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-01-12.

in new window

Date of creation: 2001
Handle: RePEc:fip:fedhwp:wp-01-12
Contact details of provider: Postal:
P.O. Box 834, 230 South LaSalle Street, Chicago, Illinois 60690-0834

Phone: 312/322-5322
Fax: 312/322-5515
Web page:

More information through EDIRC

Order Information: Web: Email:

No references listed on IDEAS
You can help add them by filling out this form.

When requesting a correction, please mention this item's handle: RePEc:fip:fedhwp:wp-01-12. 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: (Bernie Flores)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.