Credit Card Rate Stickiness

Although some studies have blamed market power by issuing banks for the persistently high rates,

- The credit card market is relatively unconcentrated, with hundreds of issuers nationwide. Since consumers could minimize their cost of credit by borrowing at the lowest possible rate,

- One would expect banks to drop their rates to attract customers in the competitive market.

Do banks maintain high rates because customers' demand for credit card loans does not respond to changes in the rates they charge that is, because demand for credit cards is inelastic with respect to the interest rates?

- Although some studies have speculated whether demand for credit cards loans is responsive to interest rates, the only information about demand elasticity’s comes from consumer survey results.

This study gives an idea of consumers' sensitivity to the various attributes of credit card plans: interest rates, annual fees, grace periods, finance charges, and additional enhancements.