Abstract
We show that naive hyperbolic consumers might be unresponsive to interest rates and credit limits of credit card offers by companies because the offers have a grace period and there is a one-period lag in using a new card. Consequently, we demonstrate that there might be no competition on the interest rate and credit limit, even if more than one firm is in the market and even if the consumer accepts only one card. We determine whether the credit card companies can exploit time-inconsistent consumers and gain positive expected profits. We show that in fact there are circumstances in which both zero and positive expected profits could be possible.
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