Cross-Selling, Switching Costs and Imperfect Competition in British Banks

Abstract

We seek to evaluate the competitiveness of British banking in the presence of cross-selling and switching costs during 1993-2008. We estimate a model of banking behaviour that encompasses switching costs as well as cross-selling of loans and off-balance sheet transactions. The evidence from panel estimation of the model lends support to our theoretical priors on the cross-selling behaviour of British banks, which helps explain the rapid growth of non-interest income during this period. Also, it is found that the banking consumer faced high switching costs in the loan market in the latter part of the sample period, which indicates a worsening of competitiveness.

Keywords: Competition, Bank, Cross-Selling, Switching Costs

JEL Classification: G21, L13