A Reassessment of Competition in the Credit Card Market by Introducing Liquidity Cost Measures: Evidence from an Emerging Economy

This paper investigates the competitive environment among 21 credit card issuers in Turkey, covering the time period between 2002 and 2008. The analysis is conducted using an estimation methodology developed by Panzar and Rosse (1982, 1987), where the degree of competition is measured as the sum of elasticities of total revenue with respect to input prices. Accounting for total revenue rather than the price of credit cards addresses a gap in previous studies, which examine only one side of the credit card market. Controlling for liquidity management costs, which were first shown to be significant for evaluating the degree of competition in the U.S. credit card industry, emerges as an important cost variable, supporting the findings of Shaffer and Thomas (2007) for an emerging market economy. The estimated Panzar-Rosse statistics are consistent with product differentiation, implying that Turkish credit card issuers are characterized by monopolistic competition.