To Switch Or Not To Switch: An Examination of Consumer Behavior in the Credit Card Industry

The credit card and credit lending industry is one of the most competitive financial industries in the United States. In this industry we see a paradox between supply and competition. One could expect that competition would be abundant because many firms compete in this market. Ironically, even though competition is intense, the industry fails to offer consumers the traditional benefits arising from competition. These benefits are: low price, market incentives to switch and “sweeteners ” such as lower rates, and other perks associated with credit cards. Credit card companies compete in two different markets, a primary market and a secondary market. The primary market is the first level of competition within the industry; it is where consumers first come into the market seeking credit. It is at this level that firms vie for first-time customers. Since most people need to establish credit and since there is an abundance of banks and credit companies, the supply is elastic. Credit firms as well as commercial banks are more than willing to offer consumers lines of credit. For instance, the firms frequently visit various college and university campuses to solicit under-employed full-time students. These firms do this fully cognizant that these students are at a high risk of default