Price and non-price competition interactions: Implicit pricing of network size and differentiation effects

Jared Osoro and Kiplangat Josea

No 47, KBA Centre for Research on Financial Markets and Policy Working Paper Series from Kenya Bankers Association (KBA)

Abstract: Contrary to predictions that brick-and-mortar banking declines with increased financial innovations and technological adoptions, bank branch network between 2006 and 2018 has tripled and ATM networks have increased four-fold. In this paper, we examine whether network convenience matter for price competition. Using a panel data framework over the 2006 to 2019 period for thirty-eight commercial banks, we find that non-price competition indicators matter for the bank's pricing behaviour. In particular: (i) the provision of an extensive branch network is associated with a higher operating costs per unit of deposits, a 'shadow price' of deposits, but is not directly priced in the case of ATMs network; (ii) the effect of network convenience on the deposit rate is negative for both bank branch network and ATMs network albeit insignificant, while the a higher deposit to branch network ratio is associated with a significant reduction in the deposit rate and but seems to be offset by a higher labour to branch network ratio, with the net effect being positive thus suggesting that deposit rates tend to rise with increased network convenience; (iii) a more extensive branch network and a higher labour-to-branch staffing ratio are significantly associated with higher loan rate, while inversely and significantly associated with a higher depositto-branch network ratio suggesting that the benefits of higher branch output productivity (and revenues) is passed on to borrowers in the form of a lower loan rates; (iv) differences in bank branch and ATMs significantly affects fee income albeit inversely in the case of branch network and positively in the case of ATMs network.

Keywords: Banks; Competition; Branch; ATMs; Pricing Behaviour (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kbawps:47

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