Consumer Behavior and the Stickiness of Credit Card Interest Rates

94-14

Posted: 14 Jul 1998

See all articles by Paul S. Calem

Paul S. Calem

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Loretta J. Mester

Federal Reserve Bank of Cleveland; University of Pennsylvania - The Wharton School

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

Calem, Paul S. and Mester, Loretta J., Consumer Behavior and the Stickiness of Credit Card Interest Rates (January 1994 ). 94-14, Available at SSRN: https://ssrn.com/abstract=7019

Paul S. Calem

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Loretta J. Mester (Contact Author)

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

University of Pennsylvania - The Wharton School

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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