Competition and regulation in the Turkish credit card market

Abstract

This thesis investigates the competitive environment among twenty one credit card issuers in Turkey, covering the time period between 2002 and 2008. The analyses are made using the methodology designed by Panzar and Rosse (1987), known as the H-statistic, where the degree of competition is found as the sum of elasticities of total revenue with respect to input prices. Accounting for total revenue rather than only credit card rates fills the gap of previous studies, which look at only one side of the credit card market. Liquidity management cost, which was firstly shown to be important for evaluating the degree of competition in the credit card industry in the United States, emerges as an important cost variable, supporting Shaffer and Thomas (2007) for an emerging market economy. The estimated Hstatistics are consistent with product differentiation implying that Turkish credit card issuers are characterized by monopolistic competition. The thesis also looks at the effect of one-sided regulation on total revenues earned by credit card issuers. Results show the positive effect of regulation on both competition and total revenue, implying that for the case of Turkey, the one-sided regulation has benefited both sides of the market.