Speaker: Daniel Cohen
Title: Sticky Spending: Evidence from Mexican Credit Cards
Abstract: Standard switching-cost models focus on “extensive-margin” frictions in exclusive markets that affect a consumer’s binary decision to switch. I propose that in non-exclusive markets with multi-homing, such as credit cards, a switch has both an “extensive-margin” component (opening a new card) and an “intensive-margin” component (shifting balances, consumption, and payments to the new card). Leveraging universal administrative data on Mexican formal-sector loans and a linked repeated cross-section from Mexico’s two credit bureaus, I document this intensive-margin friction (“sticky spending”) in the Mexican credit card market. First, I note that discrete switches are uncommon, and borrowers are more likely to accumulate cards. Second, I show that, conditional on accumulating, borrowers rarely reduce their balances, consumption, or payments on old cards. Third, I demonstrate that this stickiness is not driven by borrowers with abnormally high utilization or future consumption. Finally, I show that this friction persists even in increasingly irrational circumstances: for example, when a borrower’s new card has richer features, a higher credit limit, or a lower interest rate than their old card(s). I aim to eventually show that banks internalize this intensive-margin friction the same way they internalize traditional switching costs, thereby exacerbating market power in the credit card market.
Maggie Hendrix
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