The Evolution of Competition in the Credit Card Market

36 Pages Posted: 28 Jun 2023

See all articles by Daniel Grodzicki

Daniel Grodzicki

Office of the Comptroller of the Currency

Date Written: June 27, 2023

Abstract

This paper establishes how the classical facts characterizing a failure of competition in credit card lending during the 1980s are largely reversed in the decades following. Between 1990 and 2008 lenders' mark-ups decreased by 35 percent, profits shrank by 32 percent relative the average in banking, and prices became nearly 3 times more responsive to cost. Despite this competitive trend, market concentration rose considerably. Extending previous theories of limited competition in credit card lending, this paper argues that these changes can be explained by considering the role of costly screening in mitigating adverse selection. Complementary descriptive evidence is then presented in favor of this view.

Keywords: Market Structure, Competition, Pricing, Financial Institutions

JEL Classification: L10, D40, G20

Suggested Citation

Grodzicki, Daniel, The Evolution of Competition in the Credit Card Market (June 27, 2023). Available at SSRN: https://ssrn.com/abstract=4493211 or http://dx.doi.org/10.2139/ssrn.4493211

Daniel Grodzicki (Contact Author)

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

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