Switching Cost and Deposit Demand in China

Chun-Yu Ho

No 62014, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time. Existing consumers are forward-looking and incur a fixed cost for switching banks, whereas incoming consumers are forward-looking but do not incur any cost for joining a bank. The main finding is that consumers prefer banks with more employees and branches. The switching cost is approximately 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 substantially 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.

Keywords: Banks in China; Demand Estimation; Switching Cost (search for similar items in EconPapers)
JEL-codes: G21 L10 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2014-03
New Economics Papers: this item is included in nep-ban, nep-com and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.hkimr.org/uploads/publication/377/wp-no-06_2014-final-.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.hkimr.org/uploads/publication/377/wp-no-06_2014-final-.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/377/wp-no-06_2014-final-.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/377/wp-no-06_2014-final-.pdf)

Related works:
Journal Article: SWITCHING COST AND DEPOSIT DEMAND IN CHINA (2015)
Working Paper: Switching cost and deposit demand in China (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:062014

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().