Strategic Responses to Regulatory Threat in the Credit Card Market

48 Pages Posted: 16 Mar 2002

See all articles by Victor Stango

Victor Stango

UC Davis Graduate School of Management

Date Written: February 2002

Abstract

In November 1991, federal lawmakers threatened to place a binding cap on credit card interest rates. I find that credit card rates declined following the regulatory threat, more so for larger and more politically visible credit card issuers. A set of stock market event studies reveals that interest rate cuts announced after the threat led to positive abnormal returns, both for announcing issuers and their rivals. This pattern does not exist for similar rate cuts made outside the period of regulatory threat. The results suggest that firms may experience private benefits to price-cutting when doing so mitigates regulatory threat, and spillover benefits when another firm cuts prices in order to ease regulatory threat.

JEL Classification: L1, L5, L51

Suggested Citation

Stango, Victor, Strategic Responses to Regulatory Threat in the Credit Card Market (February 2002). FRB Chicago Working Paper No. 2002-02, Available at SSRN: https://ssrn.com/abstract=303473 or http://dx.doi.org/10.2139/ssrn.303473

Victor Stango (Contact Author)

UC Davis Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

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