Essays on switching costs in the Turkish credit card market

Abstract

This thesis consists of two essays. The first essay analyses the switching behaviour of the Turkish credit cardholders by using a very recent survey data. Customers that value bank level characteristics of the card are likely to be locked-in whereas customers are responsive to non-price benefits such as limits and cash backs. The price related features, on the other hand, are not significant factors in switching behaviours of cardholders. This finding justifies sticky interest rates and the existence of non-price competition. The model also controls for bank dummy variables and estimations reveal that each issuer generates switching costs at different levels. The second essay aims to analyse the determinants of rate sensitivity in the credit card market. The survey includes specific questions that directly measure the responsiveness of cardholders to rate cuts. This chapter investigates factors affecting the probability of switching to a lower rate card. It employs both probit and ordered probit models and estimations show that revolvers, less educated customers and customers holding several cards are more rate sensitive whereas customers using more banking services do not respond rate cuts.