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Strategic responses to regulatory threat in the credit card market

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  • Victor Stango

Abstract

In November 1991, federal lawmakers threatened to place a binding cap on credit card interest rates. I find that credit card rates declined following the regulatory threat, more so for larger and more politically visible credit card issuers. A set of stock market event studies reveals that interest rate cuts announced after the threat led to positive abnormal returns, both for announcing issuers and their rivals. This pattern does not exist for similar rate cuts made outside the period of regulatory threat. The results suggest that firms may experience private benefits to price-cutting when doing so mitigates regulatory threat, and spillover benefits when another firm cuts prices in order to ease regulatory threat.

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  • Victor Stango, 2002. "Strategic responses to regulatory threat in the credit card market," Working Paper Series WP-02-02, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-02-02
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    Cited by:

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    3. Igal Hendel & Saul Lach & Yossi Spiegel, 2017. "Consumers' activism: the cottage cheese boycott," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 972-1003, December.
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    6. Wang, Zhu, 2010. "Market structure and payment card pricing: What drives the interchange?," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 86-98, January.
    7. Bruno De Borger & Amihai Glazer, 2015. "Inducing political action by workers," Southern Economic Journal, John Wiley & Sons, vol. 81(4), pages 1117-1144, April.
    8. Keys, Benjamin J. & Wang, Jialan, 2019. "Minimum payments and debt paydown in consumer credit cards," Journal of Financial Economics, Elsevier, vol. 131(3), pages 528-548.
    9. Bonev, Petyo & Glachant, Matthieu & Söderberg, Magnus, 2018. "A Mechanism for Institutionalised Threat of Regulation: Evidence from the Swedish District Heating Market," Economics Working Paper Series 1805, University of St. Gallen, School of Economics and Political Science.
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    11. Yiwei Dou & Geng Li & Joshua Ronen, 2019. "Does Price Regulation Affect Competition? Evidence from Credit Card Solicitations," Finance and Economics Discussion Series 2019-018, Board of Governors of the Federal Reserve System (U.S.).
    12. Stango, Victor, 2003. "Strategic Responses to Regulatory Threat in the Credit Card Market," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 427-452, October.

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    Keywords

    Credit cards; Consumer credit - Law and legislation;

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