Case Detail

Case Summary

U.S. Credit Card Industry

Case Number: 5-205-256, Year Published: 2005

HBS Number: KEL152

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Authors: Nabil Al-Najjar; Ali Malik

Key Concepts

Relative vs. Absolute Competitive Advantage, Self-Control, Selection Bias


The case studies the U.S. credit card industry in the late 1990s and early 2000s. After an industry background, a discussion of generic strategies follows in which strategies like product proliferation and cost improvements are achieved through superior IT. These strategies are exemplified using the leading players in the industry. On the other hand, these strategies are easily imitable, the basic product is standardized, and the industry is highly fragmented. What accounts then for the exceptional level of profitability enjoyed by this industry? Learning Objective: The goal is to introduce psychological biases as a force that can shape industry performance. Evidence is provided showing that consumers’ attitude towards credit is prone to “irrational” failure to exercise self-control and inability to fully anticipate future borrowing behavior. A simple model is provided showing that these peculiarities in consumer psychology enable an industry, with otherwise little inherent drivers of superior profitability, to achieve superior performance. Ethical and regulatory issues are then debated.

Number of Pages: 16

Extended Case Information

Teaching Areas: Economics, Strategy

Geographic: United States

Industry: Credit Card

Organization Size: Large

Year of Case: 2005