Case Detail

Case Summary

Credit Solicitations as Market Experiments in the U.S. Credit Card Industry

Case Number: 5-204-252, Year Published: 2004, Revision Date: January 01, 0001

HBS Number: KEL005

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Authors: Nabil Al-NajjarDavid Besanko; Robert Uchoa

Key Concepts

Pricing, Credit Cards, Selection Bias


The case describes market experiments conducted by a major credit card issuer. In a typical experiment, the issuer sends out hundreds of thousands of solicitations based on information received from credit reporting agencies (e.g. credit score, past delinquencies, etc.). Selection bias is striking: the average risk profile of those responding to higher interest rates is significantly worse than that of respondents to lower rates. Tracking respondents for 27 months after the experiment, respondents to higher rates displayed significantly higher delinquency and bankruptcy rates. This short case is based on an excellent research paper by Larry Ausubel who obtained proprietary data on the condition of not revealing the name of the issuer. Contact Professor Al-Najjar for teaching methods, slides, and classroom exhibits.

Number of Pages: 5

Extended Case Information

Teaching Areas: Economics, Strategy

Geographic: United States

Industry: Credit Card

Organization Size: Large

Year of Case: 2001