Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212795 
Authors: 
Year of Publication: 
2014
Series/Report no.: 
BOFIT Discussion Papers No. 9/2014
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
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.
Subjects: 
banks in China
demand estimation
switching cost
JEL: 
G21
L10
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-78-3
Document Type: 
Working Paper

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