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Non-Price Competition in Credit Card Markets: Evidence from an Emerging Economy

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  • G. Gülsün Akın
  • Ahmet Faruk Aysan
  • Gazi Ishak Kara
  • Levent Yildiran

Abstract

Credit card rates have been shown to be very high and non-responsive to the changes in the costs of funds. The failure of price competition led to a shift of interests from price to non-price competition in these markets. Credit card issuers create switching costs for their customers by providing non-price benefits. These benefits are either direct benefits that depend on credit card usage or indirect benefits that arise from the convenience and quality of the general services of the issuer bank. This paper empirically investigates the nature of non-price competition in the Turkish credit card market using panel data, introducing the first study of this kind for an emerging market. As the main result, a significant and robust positive relationship between switching costs and credit card interest rates is obtained, confirming that as non-price benefits increase, banks charge higher credit card interest rates to their customers.

Suggested Citation

  • 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.
    • Handle: RePEc:red:sed009:2
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    References listed on IDEAS

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    4. Ahmet Faruk Aysan & A. Muslim, 2006. "The Failure of Competition in the Credit Card Market in Turkey: The New Empirical Evidence," Working Papers 2006/09, Bogazici University, Department of Economics.
    5. Victor Stango, 2000. "Competition And Pricing In The Credit Card Market," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 499-508, August.
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    7. repec:bla:jindec:v:50:y:2002:i:4:p:475-92 is not listed on IDEAS
    8. Aysan, Ahmet Faruk & Lerzan, Yildiz, 2006. "The Regulation of the Credit Card Market in Turkey," MPRA Paper 5490, University Library of Munich, Germany.
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