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

Victor Stango

138 citations0/0 files storedJournal of Industrial Economics

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Consumer Market Behavior and Pricing Banking stability, regulation, efficiency Merger and Competition Analysis

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.

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