Debit and Credit Card Industry When people think of the credit card and debit card industry, they think of four main companies: Visa, MasterCard, American Express, and Discover. These companies represent the credit card network side of the industry. Another side of the industry, the credit card issuers, are far greater in number and exhibit some characteristics of a perfectly competitive market. Credit card issuers are the financial institutions that back consumers’ payments. Issuers approve applications and establish credit limits and interest rates. They provide any perks related to the card and collect payments. You can choose cards from over six thousand credit issuers. Think of all the banks and credit unions that offer cards. (Retailer cards are generally backed by a bank.) As of 2019, 70% of the U.S. population had at least one credit card. In fact, many people have multiple cards. Approximately 1.89 billion credit cards are in use in the United States and $3.8 trillion in purchases were charged on credit cards in 2018. Credit cards all serve a similar function, they provide payment in lieu of cash, and have a similar appearance. Retailers do not look at who issues your card; generally, they are concerned only with the payment going through. As evidenced by the number of credit issuers, it is easy to enter the credit origination market. Further, with so many issuers, companies can sell their accounts and exit the market with ease. The large number of issuers ensure interest rates remain competitive. Further, interest rate incentives and other purchasing incentives are known, can easily be evaluated by consumers, and often are similar if not identical between cards. Does the fact that the credit card issuing industry meets some criteria of perfect competition benefit society? Why or Why not?

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter7: Production And Cost In The Firm

Section: Chapter Questions

Problem 1.3P

See similar textbooks

Debit and Credit Card Industry

When people think of the credit card and debit card industry, they think of four main companies: Visa, MasterCard, American Express, and Discover. These companies represent the credit card network side of the industry. Another side of the industry, the credit card issuers, are far greater in number and exhibit some characteristics of a perfectly competitive market. Credit card issuers are the financial institutions that back consumers’ payments. Issuers approve applications and establish credit limits and interest rates. They provide any perks related to the card and collect payments. You can choose cards from over six thousand credit issuers. Think of all the banks and credit unions that offer cards. (Retailer cards are generally backed by a bank.) As of 2019, 70% of the U.S. population had at least one credit card. In fact, many people have multiple cards. Approximately 1.89 billion credit cards are in use in the United States and $3.8 trillion in purchases were charged on credit cards in 2018. Credit cards all serve a similar function, they provide payment in lieu of cash, and have a similar appearance. Retailers do not look at who issues your card; generally, they are concerned only with the payment going through. As evidenced by the number of credit issuers, it is easy to enter the credit origination market. Further, with so many issuers, companies can sell their accounts and exit the market with ease. The large number of issuers ensure interest rates remain competitive. Further, interest rate incentives and other purchasing incentives are known, can easily be evaluated by consumers, and often are similar if not identical between cards.

Does the fact that the credit card issuing industry meets some criteria of perfect competition benefit society? Why or Why not?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.