 Switching costs in local credit marketsGuglielmo Barone (), Roberto Felici and Marcello Pagnini () International Journal of Industrial Organization, 2011, vol. 29, issue 6, 694-704 Abstract: Switching costs are a key determinant of market performance. This paper tests their existence in the corporate loan market in which they are likely to play a central role because of the complexity of contracts and the relevance of informational problems. Using very detailed data at bank–firm level on four Italian local credit markets we empirically show that firms tend to iterate their choice of the main bank over time. This inertia is not related to unobserved and time invariant firms' preferences across banks and can be attributed to the existence of switching costs. Moreover these costs are higher for single-bank firms. We also offer evidence that banks price discriminate between new and old borrowers by charging lower interest rates to the former in order to cover part of the switching costs. The discount amounts to about 44 basis points and is equal to 7% of the average interest rate. These results prove robust to a number of other potential identification drawbacks. Keywords: Switching costs; Local credit markets; Price discrimination; Lending relationships (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:29:y:2011:i:6:p:694-704 DOI: 10.1016/j.ijindorg.2011.03.004 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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