Free download casestudies regarding managerial economics?

Answer 1

In 1997, over $700 billion purchases were charged on credit cards, and this total is increasing at a rate of over

10 per cent a year. At first glance, the credit card market would seem to be a rather concentrated industry. Visa,

MasterCard and American Express are the most familiar names, and over 60 per cent of all charges are made

using one of these three cards. But on closer examination, the industry seems to exhibit most characteristics of

perfect competition. Consider first the size and distribution of buyers and sellers. Although Visa, Mastercard and

American Express are the choices of the majority of consumers, these cards do not originate from just three

firms. In fact, there are over six thousand enterprises (primarily banks and credit unions) in the US that offer

charge cards to over 90 million credit card holders. One person's Visa card may have been issued by his

company's credit union in Los Angeles, while a next door neighbour may have acquired hers from a Miami Bank

when she was living in Florida. Managerial Economics ............................................. Page 4 of 4 ............................................................................... IMT-20

Creditcards are a relatively homogenous product. Most Visa cards are similar in appearance, and they can all

be used for the same purposes. When the charge is made, the merchant is unlikely to notice who it was that

actually issued the card. Entry into and exit from the credit card market is easy as evidenced by the 6000

institutions that currently offer cards. Although a new firm might find it difficult to enter the market, a financially

sound bank, even one of modest size, could obtain the right to offer a MasterCard or a Visa card from the

present companies with little difficulty. If the bank wanted to leave the field, there would be a ready market to

sell its accounts to other credit card suppliers. Thus, it would seem that the credit card industry meets most of

the characteristics for a perfectly competitive market