Competition and Customer Acquisition in the U.S. Credit Card Market

The U.S. credit card market is highly concentrated and highly profitable, two facts which have drawn scrutiny of its competitive practices. I study competition in this market by analyzing how lenders target and acquire new customers using direct-mail, their principal acquisition channel. I find competition greatly impacts a lender’s profits. Average annual profit is 31%-53% ($73-$185 million) lower compared to a monopoly counterfactual. Competition also considerably reduces additional profits generated by eliminating mailing costs, such as would be the case if consumers were targeted digitally. This may help explain lenders’ curiously steadfast reliance on direct-mail for acquiring customers