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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.

Suggested Citation

  • 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:

    1. Ahmet Faruk Aysan & Nusret Ahmet Muslim, 2006. "The Failure of Competition in the Credit Card Market in Turkey: The New Empirical Evidence," Working Papers 2006/10, Turkish Economic Association.
    2. Justine S. Hastings & Ali Hortaçsu & Chad Syverson, 2013. "Sales Force and Competition in Financial Product Markets: The Case Of Mexico’s Social Security Privatization," NBER Working Papers 18881, National Bureau of Economic Research, Inc.
    3. 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.
    4. Bruno De Borger & Amihai Glazer, 2015. "Inducing political action by workers," Southern Economic Journal, Southern Economic Association, vol. 81(4), pages 1117-1144, April.
    5. Hendel, Igal E & Lach, Saul & Spiegel, Yossi, 2015. "Consumers' Activism: the Facebook boycott of Cottage Cheese," CEPR Discussion Papers 10460, C.E.P.R. Discussion Papers.

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    Keywords

    Credit cards ; Consumer credit - Law and legislation;

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