Competition and Customer Acquisition in the U.S. Credit Card Market
-Industrial Organization Seminar
PCPSE Room 202
ABSTRACT: I construct an equilibrium model of how credit card issuers compete for and acquire new customers. Rather than limiting a card contract to a single interest rate, as is most often done, this model allows for a rich set of contract characteristics, such as promotional rates, fees, and rewards, which potential customers value differently. I estimate the model using rich individual level data on credit card mail-out offers and recover both customers' preference and sellers' value parameters from variation in the offer decisions. I then use the estimated model to study excess entry in this market (too many mailers!). Specifically, I highlight the role of consumer inattention as a potential driver of this excess entry.