Final answer:
Credit card companies benefit from transaction fees, increased borrowing, and attracting new customers when firms accept their cards. Above-equilibrium interest rates increase loan supplies to credit card borrowers but may necessitate lower rates to attract more business.
Step-by-step explanation:
When a firm accepts a credit card company's card, the credit card company benefits in several ways. The company earns money through transaction fees charged to the firm for each sale made with the card, helps to increase the volume of credit card transactions which can lead to more borrowing and balance carrying, and it can potentially attract new customers who prefer to use that particular card. Additionally, when issuing credit at an above-equilibrium interest rate, there is more incentive for firms to supply loans to credit card borrowers as the interest rates provide higher returns. However, if fewer consumers or businesses are borrowing, credit card companies may lower their interest rates to attract more borrowers, thus increasing the use of their card and benefiting from the additional business gathered through this strategy.
In a situation where a price ceiling is imposed on the interest rates that can be charged, as with the example of Figure 4.8, if the ceiling is below the equilibrium interest rate, the credit shortage may occur, forcing companies to become more selective in issuing credit cards. Nonetheless, for credit card companies that navigate this marketplace effectively, having their card widely accepted is an essential part of their business model and contributes to their financial success.