Switching Cost and Deposit Demand in China

27 Pages Posted: 31 Jul 2015

See all articles by Chun-Yu Ho

Chun-Yu Ho

State University of New York (SUNY) - Department of Economics

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Date Written: August 2015

Abstract

This article develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time. The switching cost is 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 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.

Suggested Citation

Ho, Chun-Yu, Switching Cost and Deposit Demand in China (August 2015). International Economic Review, Vol. 56, Issue 3, pp. 723-749, 2015, Available at SSRN: https://ssrn.com/abstract=2638125 or http://dx.doi.org/10.1111/iere.12120

Chun-Yu Ho (Contact Author)

State University of New York (SUNY) - Department of Economics ( email )

1400 Washington Ave
Albany, NY 12222
United States

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