Arbeitspapier
Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry
How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains.
- Language
-
Englisch
- Bibliographic citation
-
Series: IZA Discussion Papers ; No. 12836
- Classification
-
Wirtschaft
Household Saving; Personal Finance
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Welfare Economics: General
Macroeconomics: Consumption; Saving; Wealth
Financial Markets and the Macroeconomy
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- Subject
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welfare costs of monopoly
consumer credit
competition
welfare
- Event
-
Geistige Schöpfung
- (who)
-
Herkenhoff, Kyle
Raveendranathan, Gajendran
- Event
-
Veröffentlichung
- (who)
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Institute of Labor Economics (IZA)
- (where)
-
Bonn
- (when)
-
2019
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Herkenhoff, Kyle
- Raveendranathan, Gajendran
- Institute of Labor Economics (IZA)
Time of origin
- 2019
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