Abstract
How do large, national credit card lenders affect interest rates, the size of the credit card market, and household welfare? We answer this question by developing a novel theory in which national lenders strategically influence market-level and economy-wide interest rates. Our theory predicts that pass-through rates from bank funding costs to credit card spreads depend on market- and national-level shares, unlike perfect or monopolistic competition. These predictions are borne out in bank regulatory data: pass-through rates are 10% lower in markets where a bank is large (top 30% share) compared to all other markets in which the bank operates. We find similar results for
banks with large national shares, and our results are robust to the exclusion of geography in the market definition. We then use these moments to discipline market power in our model and measure its costs. Moving from national oligopoly to perfect competition reduces credit card interest rates by 2pp, increases credit-to-GDP by 3.6pp, and yields a consumption equivalent gain between 0.03% and 0.15%.
The seminar will be held in auditorium 5 at Eilert Sundts Hus, block A. The address is Moltke Moes vei 31.