REGULATORY INTERVENTION IN CONSUMER SEARCH MARKETS: THE CASE OF CREDIT CARDS

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• Alessandro Gavazza, LSE
• Wednesday 06 March 2019, 12:30-14:00
• KH107, Cambridge Judge Business School.

If you have a question about this talk, please contact Emily Brown.

There will be a light lunch served at the start of the seminar inside KH107.

We build a framework to understand the effects of regulatory interventions in credit markets, such as caps on interest rates and higher compliance costs for lenders. We focus on the credit card market, in which we observe a large dispersion of interest rates at which U.S. consumers borrow.

Our framework includes two main features that may explain this dispersion: endogenous search effort/inattention and product differentiation. Our calibration suggests that low search effort accounts for almost all the dispersion in interest rates, whereas product differentiation is negligible.

The calibrated model implies that price caps may curb lenders’ market power, but may also reduce borrowers’ search effort, with potentially ambiguous aggregate welfare effects.

This talk is part of the Economics & Policy Seminars, CJBS series.

This talk is included in these lists:

• Economics & Policy Seminars, CJBS
• KH107, Cambridge Judge Business School

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