Case Study: Perfect Competition in Credit Card Industry!In 1997, over $700 billion purchases were charged on credit cards and this total isincreasing at a rate of over 10 per cent a year. At first glance, the credit card marketwould seem to be a rather concentrated industry. Visa, MasterCard and AmericanExpress are the most familiar names, and over 60 per cent of all charges are made usingone of these three cards. But on closer examination, the industry seems to exhibit mostcharacteristics of perfect competition. Consider first the size and distribution of buyersand sellers. Although Visa, MasterCard and American Express are the choices of themajority of consumers, these cards do not originate from just three firms. In fact, thereare over six thousand enterprises (primarily banks and credit unions) in the US thatoffers charge cards to over 90 million credit card holders. One person’s Visa card mayhave been issued by his company’s credit union in Los Angeles, while a next doorneighbour may have acquired hers from a Miami Bank when she was living in Florida.Credit cards are a relatively homogenous product. Most Visa cards are similar inappearance, and they can all be used for the same purposes. When the charge is made,the merchant is unlikely to notice who it was that actually issued the card. Entry intoand exit from the credit card market is easy as evidenced by the 6000 institutions thatcurrently offer cards. Although a new firm might find it difficult to enter the market, afinancially sound bank, even one of modest size, could obtain the right to offer aMasterCard or a Visa card from the present companies with little difficulty. If the bankwanted to leave the field, there would be a ready market to sell its accounts to othercredit card suppliers. Thus, it would seem that the credit card industry meets most of |the characteristics for a perfectly competitive market.ReferencePrasad, A., 2015. Case Study: Perfect Competition in Credit Card Industry! [Blog] InfiniteSoluzioni Blog, Available at: <http://bkmiba.blogspot.com/2015/08/case-study-perfect-competition-in.html>.
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