Consumer Behavior and the Stickiness of Credit Card Interest Rates
94-14
Posted: 14 Jul 1998
Date Written: January 1994
Abstract
Analyzing data from the 1989 Survey of Consumer Finances, we find credit card borrowing is inversely correlated with a household's willingness to comparison shop for loans and deposits. Households with larger balances have higher disutility of search, ceteris paribus. In addition, these households are more likely to be rejected or to be granted a lower-than-desired credit limit when applying for new credit, and so may find it difficult to switch from one card issuer to another. This partly explains the stickiness of card interest rates and why issuers enjoy above average returns despite the industry's competitive structure.
JEL Classification: E51
Suggested Citation: Suggested Citation