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Credit card rates and consumer search

Author

Listed:
  • Mitchell Berlin
  • Loretta J. Mester

Abstract

Credit card rates have tended to be higher and stickier than other loan rates but have fallen over the past decade. Some argue this decline is due to a reduction in consumer search costs. Our evidence suggests search costs are not the best explanation for the decline. We test whether consumer search models explained credit card pricing in the 1980s when search costs were thought to be significant. We find that the distributions of rates were inconsistent with those derived from many models of search. Proposals for stricter disclosure requirements may have less effect on equilibrium credit card rates than intended.
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Suggested Citation

  • Mitchell Berlin & Loretta J. Mester, 1987. "Credit card rates and consumer search," Working Papers 88-1, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:88-1
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    2. Gholamreza Zandi & Shaheen Mansori & Ong Boon Hai, 2019. "The Effect of Demographic Variables and Ownership on Credit Card Market in Malaysia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 359-369, August.
    3. Omar A. Abdelrahman, 2016. "Credit Card Rates and Consumer Switch: New Evidence," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 95-105, December.
    4. Calem, Paul S. & Gordy, Michael B. & Mester, Loretta J., 2006. "Switching costs and adverse selection in the market for credit cards: New evidence," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1653-1685, June.
    5. Ayadi, O. Felix, 1997. "Adverse selection, search costs and sticky credit card rates," Financial Services Review, Elsevier, vol. 6(1), pages 53-67.
    6. Massoud, Nadia & Saunders, Anthony & Scholnick, Barry, 2011. "The cost of being late? The case of credit card penalty fees," Journal of Financial Stability, Elsevier, vol. 7(2), pages 49-59, June.
    7. Itamar Drechsler & Hyeyoon Jung & Weiyu Peng & Dominik Supera & Guanyu Zhou, 2025. "Credit Card Banking," Staff Reports 1143, Federal Reserve Bank of New York.
    8. Abbas Valadkhani & Sajid Anwar & Amir Arjonandi, 2012. "How to capture the full extent of price stickiness in credit card interest rates?," Economics Working Papers wp12-02, School of Economics, University of Wollongong, NSW, Australia.
    9. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    10. Kevin Amess & Leigh Drake & Helen Knight, 2010. "An Empirical Analysis of UK Credit Card Pricing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(2), pages 101-117, September.
    11. Scott T. Nelson, 2025. "Private Information and Price Regulation in the US Credit Card Market," Econometrica, Econometric Society, vol. 93(4), pages 1371-1410, July.
    12. Scholnick, Barry & Massoud, Nadia & Saunders, Anthony & Carbo-Valverde, Santiago & Rodríguez-Fernández, Francisco, 2008. "The economics of credit cards, debit cards and ATMs: A survey and some new evidence," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1468-1483, August.

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