Consumer Demand for Credit Card Services

51 Pages Posted: 19 Dec 2017

See all articles by Alexei Alexandrov

Alexei Alexandrov

Independent

Özlem Bedre-Defolie

European School of Management and Technology

Daniel Grodzicki

Penn State Economics

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Date Written: December 2017

Abstract

We estimate how demand for credit card transacting, borrowing, and late payment responds to the interest rate and late payment fee. We find that lower rates increase borrowing and lower fees increase late payments. Prime cardholders demand for all services is decreasing in any price. In contrast, subprime cardholders borrow less when fees drop, a response consistent with models of limited attention. We calculate that a 2 percentage point rise in the Federal Funds rate decreases borrowing by 16 percent, or $130 billion, that this effect is greater in higher income communities, and that it exhibits geographic agglomeration.

Suggested Citation

Alexandrov, Alexei and Bedre-Defolie, Özlem and Grodzicki, Daniel, Consumer Demand for Credit Card Services (December 2017). CEPR Discussion Paper No. DP12506, Available at SSRN: https://ssrn.com/abstract=3089763

Özlem Bedre-Defolie

European School of Management and Technology ( email )

Daniel Grodzicki

Penn State Economics ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

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