Switching cost and deposit demand in China
Ho, Chun-Yu (25.03.2014)
Numero
9/2014Julkaisija
Bank of Finland
2014
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-201408072200Tiivistelmä
This paper develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time. Existing consumers are forward-looking and incur a fixed cost for switching banks, whereas incoming consumers are forward-looking but do not incur any cost for joining a bank. The main finding is that consumers prefer banks with more employees and branches. The switching cost is approximately 0.8% of the deposit's value, which leads the static model to bias the demand estimates. The dynamic model shows that the price elasticity over a long time horizon is substantially larger than the same elasticity over a short time horizon. Counterfactual experiments with a dynamic monopoly show that reducing the switching cost has a comparable competitive effect on bank pricing as a result of reducing the dominant position of the monopoly. Keywords: banks in China, demand estimation, switching cost. JEL classifications: G21, L10
Julkaisuhuomautus
Published in International Economic Review, Volume 56, Issue 3, 1 August 2015: 723-749