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The Failure of Competition in the Credit Card Market in Turkey: The New Empirical Evidence

Author

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  • Ahmet Faruk Aysan

    (Bogazici University)

  • Nusret Ahmet Muslim

    (Bogazici University)

Abstract

The high credit card interest rates in Turkey attracted considerable attention in recent years to regulate the Turkish credit card industry. Before any regulation decision taken, there needs to be better conceptualization and analysis of the Turkish credit card market. This paper sheds some light in this direction. First, we highlight the most striking aspects of the Turkish credit card market. After exposing the problem, we benefit from the existing theoretical and empirical studies on the structure of competition in the credit card industry. Potential reasons for the lack of competitions are denoted. Having the existing studies in mind, we finally, construct an empirical model to estimate the market structure in the Turkish credit card industry. Newly disseminated data on the Turkish credit card industry is first introduced in this paper. Our empirical results are based on the panel data set of 22 banks from the second quarter of 2001 to the third quarter of 2005. In addition to random and fixed effects regressions, instrumental variable fixed effect regressions are run on this sample. Our results robustly conclude that the credit cards interest rates in Turkey are economically insensitive to the changes in the cost of fund. This result indicates that Turkish credit card market is characterized with lack of strong competition and hence suggests some regulatory measures.

Suggested Citation

  • 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.
  • Handle: RePEc:tek:wpaper:2006/10
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    References listed on IDEAS

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    1. C. Emre Alper & Murat Ucer, 1998. "Some Observations on Turkish Inflation: A ''Random Walk'' Down the Past Decade," Working Papers 1998/02, Bogazici University, Department of Economics.
    2. C. Emre Alper, 2001. "The Turkish Liquidity Crisis of 2000: What Went Wrong..," Working Papers 2001/11, Bogazici University, Department of Economics.
    3. 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.
    4. Calem, Paul S & Mester, Loretta J, 1995. "Consumer Behavior and the Stickiness of Credit-Card Interest Rates," American Economic Review, American Economic Association, vol. 85(5), pages 1327-1336, December.
    5. Stuart E. Weiner & Julian Wright, 2005. "Interchange fees in various countries : developments and determinants," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 5-49.
    6. 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.
    7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    8. Ayadi, O. Felix, 1997. "Adverse selection, search costs and sticky credit card rates," Financial Services Review, Elsevier, vol. 6(1), pages 53-67.
    9. Sangkyun Park, 1997. "Option value of credit lines as an explanation of high credit card rates," Research Paper 9702, Federal Reserve Bank of New York.
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    Cited by:

    1. Ahmet Faruk Aysan & L. Yildiz, 2006. "The Regulation of the Credit Card Market in Turkey," Working Papers 2006/21, Bogazici University, Department of Economics.
    2. G. Gülsün Akın & Ahmet Faruk Aysan & Gazi Ishak Kara & Levent Yildiran, 2009. "Non-Price Competition in Credit Card Markets: Evidence from an Emerging Economy," 2009 Meeting Papers 2, Society for Economic Dynamics.
    3. G. Gulsun Akin & Ahmet Faruk Aysan & Gazi Ishak Kara & Levent Yildiran, 2010. "The Failure of Price Competition in the Turkish Credit Card Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(0), pages 23-35, May.
    4. Ahmet AYSAN & G. GULSUN AKIN & Denada BORICI & Levent YILDIRAN, "undated". "A Reassessment of Competition in the Credit Card Market by Introducing Liquidity Cost Measures: Evidence from an Emerging Economy," EcoMod2010 259600016, EcoMod.

    More about this item

    Keywords

    Credit Cards; Regulation; Supervision; Financial Markets; Banking; Competition Market Structure.;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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