SWITCHING COST AND DEPOSIT DEMAND IN CHINA

Chun-Yu Ho

International Economic Review, 2015, vol. 56, issue 3, 723-749

Abstract: This article develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time. The switching cost is 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 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.

Date: 2015
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https://doi.org/10.1111/iere.12120

Related works:
Working Paper: Switching Cost and Deposit Demand in China (2014)
Working Paper: Switching cost and deposit demand in China (2014)
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