The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Credit Card Industry

  • Victor Stango
  • Julian Wright
Reference work entry


The concept of a general purpose credit card originated in 1949, when Frank McNamara dined in a New York restaurant and discovered that he could not pay for his meal (Evans and Schmalensee 1999). By the 1980s credit cards had become ubiquitous, and they remain a popular form of payment in most economies. Banks offer cards, setting terms such as interest rates and annual fees. Transactions are handled by networks such as Visa and MasterCard, which emerged in the 1970s as joint member associations. Early research examining the market typically focused on the retail level, while more recent work has tended to focus on the network level, mirroring a shift in policy concerns in the 1980s.


Credit card industry Interchange fees Interest rates Stickiness of Networks Sticky prices Two-sided markets 

JEL Classifications



  1. Ausubel, L. 1991. The failure of competition in the credit card market. American Economic Review 81: 50–81.Google Scholar
  2. Baxter, W. 1983. Bank interchange of transactional paper: Legal perspectives. Journal of Law and Economics 26: 541–588.CrossRefGoogle Scholar
  3. Brito, D., and P. Hartley. 1995. Consumer rationality and credit cards. Journal of Political Economy 103: 400–433.CrossRefGoogle Scholar
  4. Calem, P., and L. Mester. 1995. Consumer behavior and the stickiness of credit-card interest rates. American Economic Review 85: 1327–1336.Google Scholar
  5. Evans, D., and R. Schmalensee. 1999. Paying with plastic. Cambridge, MA: MIT Press.Google Scholar
  6. Knittel, C., and V. Stango. 2003. Price ceilings as focal points for tacit collusion: Evidence from credit cards. American Economic Review 93: 1703–1729.CrossRefGoogle Scholar
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  8. Rochet, J.-C. 2003. The theory of interchange fees: A synthesis of recent contributions. Review of Network Economics 2(2): 97–124.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Victor Stango
    • 1
  • Julian Wright
    • 1
  1. 1.