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- Title
THE SUDDEN ONSET OF PRICE COMPETITION IN THE US CREDIT CARD INDUSTRY.
- Authors
Schumann, Hans O.
- Abstract
The credit card industry of the 1980s was viewed with great interest because as an industry with over 4000 firms selling an almost identical product, it should be expected to behave like a text book example of an industry in "Pure or "Perfect Competition". Until 1992, it did not. Product pricing, as measured by the card issuer's Annualized Interest Rate (APR) showed no sign of significant decline when most other bank interest rates declined due to reduced funding costs. In 1992, everything changed and price competition became the primary competitive tool used and industry interest rates began to decline. Three forces coalesced together to create this shift: 1) the unique characteristics of the 1992 recession; 2) the ongoing presidential campaign highlighting health care reform; and, 3) the existence of some issuers who had a "variable" vs. "fixed" interest rate. These working together caused the typical revolving credit customer to view their credit card interest payments as something that needed to and could be managed, which in turn dramatically changed issuer's card positioning and prices.
- Subjects
UNITED States; CREDIT cards; CREDIT card marketing; CREDIT card fees; HEALTH care reform; CREDIT card interest
- Publication
Academy of Banking Studies Journal, 2013, Vol 12, Issue 1/2, p13
- ISSN
1939-2230
- Publication type
Article