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Alessandro Gavazza (LSE)

23 May 2018 at 12:00 PM - 1:15 PM

Room 106b, Campus on Viale Romania, 32

Speaker: Alessandro Gavazza, London School of Economics


Regulatory Interventions in Consumer Search Markets: The Case of in Credit Cards 


Data on U.S. credit card markets display a large dispersion of interest rates
at which consumers borrow. To understand this dispersion, we build a search
model with two novel features: search effort/inattention and product
differentiation. We calibrate the model to match statistics on the interest
rate distribution that borrowers pay. The model fits these data well. Our
analysis implies that low search effort accounts for almost all the dispersion
in interest rates, whereas product differentiation is negligible. We use the
calibrated model to study regulatory interventions in credit markets, such as
caps on interest rates and higher lenders' entry costs.