A friend of mine has done a lot of research on the major credit card companies for his hedge fund. He noticed that these companies tend to raise their fees basically in lock-step (when one does it, the others follow quickly).
This behavior seemed counter-intuitive to me -- I would have guessed that the companies would compete to keep fees low. But this actually makes some sense in a world where the seller (the credit card company) reacts much more quickly than the buyer (the fee-paying banks and merchants). Banks and merchants can only switch credit card issuers if they can get their customers to (i.e. the card-holders). Therefore, it's possible for a card company to raise fees without losing market share right away. Other card companies take note and their dominant strategy is to raise fees as well.
A friend of mine has done a lot of research on the major credit card companies for his hedge fund. He noticed that these companies tend to raise their fees basically in lock-step (when one does it, the others follow quickly).
This behavior seemed counter-intuitive to me -- I would have guessed that the companies would compete to keep fees low. But this actually makes some sense in a world where the seller (the credit card company) reacts much more quickly than the buyer (the fee-paying banks and merchants). Banks and merchants can only switch credit card issuers if they can get their customers to (i.e. the card-holders). Therefore, it's possible for a card company to raise fees without losing market share right away. Other card companies take note and their dominant strategy is to raise fees as well.