Pricing with Consumer Switching Costs: Evidence from the Credit Card Market

Author: Stango, Victor

Source: Journal of Industrial Economics, Volume 50, Number 4, December 2002 , pp. 475-492(18)

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Abstract:

The credit card market is a natural setting for investigating the relationship between pricing and consumer switching costs. I find, using a detailed panel of credit card issuers, that switching costs are an important influence on pricing for commercial banks. The results are stronger for commercial banks with risky customer bases, suggesting that there is a relationship between default and switching costs. Switching costs appear to have almost no influence on pricing for credit unions, a result that is consistent with their status as not-for-profit entities.

Document Type: Original article

DOI: http://dx.doi.org/10.1111/1467-6451.00187

Affiliations: 1: Federal Reserve Bank of Chicago victor.stango@chi.frb.org

Publication date: 2002-12-01