Consumer Valuation of Network Convenience: Evidence from the Banking Industry

39 Pages Posted: 12 Jan 2011 Last revised: 4 Nov 2019

See all articles by Hui Wang

Hui Wang

Peking University - Guanghua School of Management

Andrew T. Ching

Johns Hopkins University - Carey Business School

Date Written: November 2, 2019

Abstract

This paper develops a structural multi-location consumer demand model to analyze spatially differentiated retail networks. A novel feature is that we allow consumers to care about outlets that are close to either home or workplace locations. This is in contrast to the previous literature, which assumes consumers only value their home locations. We apply our model to the U.S. retail banking industry. To estimate our model, we use a detailed worker flow dataset to obtain consumers’ home and work locations, and combine it with a dataset that details each branch’s deposit and location in 132 isolated US cities. Our results shows that consumers put almost equal weights on their home and workplace locations in accessing banking services. To demonstrate the value of a bank’s branch network, we conduct a counterfactual experiment by restricting consumers to access banking services from only one branch. Effectively, this restricts consumers to access banking services from either home or workplace location, but not both. We find that for banks with more than 10 branches per local market, on average they could lose 8.6 percent of their existing market share under this counterfactual scenario.

Keywords: Network; Spatial Competition; Retail Banking; Discrete Choice Model

JEL Classification: C25, G21, L11, L89

Suggested Citation

Wang, Hui and Ching, Andrew T., Consumer Valuation of Network Convenience: Evidence from the Banking Industry (November 2, 2019). Available at SSRN: https://ssrn.com/abstract=1738084 or http://dx.doi.org/10.2139/ssrn.1738084

Hui Wang (Contact Author)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Andrew T. Ching

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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