Consumer Valuation of Network Convenience: Evidence from the Banking Industry

44 Pages Posted: 12 Jan 2011 Last revised: 23 Nov 2021

See all articles by Hui Wang

Hui Wang

Peking University - Guanghua School of Management

Andrew T. Ching

Johns Hopkins University - Carey Business School

Xinyu Zhao

Johns Hopkins University - Department of Economics

Date Written: November 18, 2021

Abstract

This paper develops and estimates a structural demand model which incorporates consumer preferences for geographical convenience of retailers’ networks. Unlike the previous literature, which assumes consumers only care about retailer’s outlet located closest to their home locations, our model explicitly allows consumers to consider two outlets of a retailer located nearest their home and work locations, respectively. We apply our model to the U.S. retail banking industry. To estimate our model, we use the U.S. Journey to Work dataset to obtain consumers’ home and work locations in the population, and combine it with a dataset that details each branch’s deposit and location of 132 isolated cities. The results show that consumers value the proximity of outlets to home and work locations roughly equally. In the counterfactual experiments, we evaluate the impact of various Work From Home policies on how consumers value a bank’s branch network. In the baseline counterfactual experiment, where everyone is assumed to work from home, the market shares of banks specializing in serving work locations drop by 0.7 percentage point (which is 8.6% of the mean market share in the data).

Keywords: Spatial Competition; Retail Banking Network; Demand Estimation; Post COVID-19 Pandemic; Work From Home Policy

JEL Classification: C25, D14, G21, L11, L14, L89, M21

Suggested Citation

Wang, Hui and Ching, Andrew T. and Zhao, Xinyu, Consumer Valuation of Network Convenience: Evidence from the Banking Industry (November 18, 2021). Available at SSRN: https://ssrn.com/abstract=1738084 or http://dx.doi.org/10.2139/ssrn.1738084

Hui Wang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Andrew T. Ching (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Xinyu Zhao

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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