An empirical examination of price competition in the Turkish credit card market

The high credit card interest rates in Turkey attracted considerable attention in recent years to regulate the Turkish credit card industry. Before any regulation decision is taken, there needs to be better conceptualization and analysis of the Turkish credit card market. First, we highlight the most striking aspects of the Turkish credit card market. After exposing the problem, we benefit from the existing theoretical and empirical studies on the structure of competition in the credit card industry. Potential reasons for the lack of competition are denoted. Having the existing studies in mind, we finally construct an empirical model to estimate the market structure in the Turkish credit card industry. Newly disseminated data on the Turkish credit card industry is first introduced in this paper. Our empirical results are based on the panel data set of 22 banks from the second quarter of 2001 to the third quarter of 2005. In addition to random and fixed effects regressions, instrumental variable fixed effect regressions are run on this sample. Our results robustly conclude that the credit card interest rates in Turkey are economically insensitive to the changes in the cost of funds. This result shows a lack of strong competition in the Turkish credit card market.