Strategic Behavior between a Bank and A Microfinance Institution: The Role of Psychological Distance and Education Level

François Fall and Thanh Tam Nguyen-Huu (nguyentam9483@gmail.com)
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Thanh Tam Nguyen-Huu: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School

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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 distanceand 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: C72; D43; spatial competition bank microfinance market power G21 O17 C72 D43; spatial competition; bank; microfinance; market power G21; O17 (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-fdg, nep-gth, nep-mfd and nep-ure
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Published in Journal of Developing Areas, 2022, 56 (4), pp.29-41. ⟨10.1353/jda.2022.0062⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04248194

DOI: 10.1353/jda.2022.0062

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