Gajendran Raveendranathan, McMaster University - September 25, 2019

Posted on 2019-10-02 in Events, Upcoming Seminars
Sep 25, 2019



Title: Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry (with Kyle Herkenhoff)

Abstract: 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 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 half of the spreads and excess profits observed in the data. The welfare gain from competitive reform in the credit card industry is equivalent to a one-time transfer worth 3.4 percent of GDP. Along the transition path, all cohorts realize welfare gains from competitive reform. Poor households benefit the most from increased consumption smoothing, while rich households also benefit from higher general equilibrium saving interest rates.

Back to News Listing

Related Articles

J.M. Boving Lecture | December 5 2019 | The Two Faces of Populism: Politics or Economics?

Posted on 2019-11-20

The Two Faces of Populism: Politics or Economics? Presented by Professor Barry Eichengreen, University of California Berkeley, at 5:00pm Arts 241.


Lanny Zrill, HEC Montreal - October 28, 2019

Posted on 2019-10-21

Lanny Zrill, HEC Montreal will present a seminar at 4:00pm in Arts 807


Yu Zhu, Bank of Canada - October 25, 2019

Posted on 2019-10-21

Yu Zhu, Bank of Canada will present a seminar at 4:00pm in Arts 807


Christian Trudeau, University of Windsor - October 2, 2019

Posted on 2019-10-02

Christian Trudeau, University of Windsor will present a seminar at 4:00pm in Arts 807


Johannes Hoelzemann, University of Toronto - September 17, 2019

Posted on 2019-10-01

Johannes Hoelzemann, University of Toronto will present a seminar at 4:00pm in Arts 807