Strategic behavior between a bank and a microfinance institution: The role of psychological distance and education level

François Fall and Thanh Tam Nguyen-Huu

No 2015-66, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In Hotelling's fundamental model (1929), the geographical distance and high transportation costs grant firms present in a market a certain power over local buyers in their neighborhoods. Starting from his model, this study shows that in the competition between a bank and a microfinance institution (MFI), geographical distance and transportation costs alone are no longer sufficient for attributing market power to the firms present. In fact, the introduction of psychological distance and education level in the model alter the Hotelling's results. Psychological proximity (trust) and the educational level of the client play determinant roles in dividing the credit market between a bank and an MFI.

Keywords: spatial competition; bank; microfinance; market power (search for similar items in EconPapers)
JEL-codes: C72 D43 G21 O17 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-com, nep-cse and nep-mfd
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https://www.econstor.eu/bitstream/10419/123482/1/841269416.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201566

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