Quantifying Inertia in Retail Deposit Markets

57 Pages Posted: 31 Aug 2018

See all articles by Florian Deuflhard

Florian Deuflhard

European Union - European Commission

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018


This paper investigates inertia within and across banks in retail deposit markets using detailed panel data on consumer choices and account characteristics. In a structural choice model, I find that costs of inertia are around one third higher for switching accounts across compared to switching within banks. Observable proxies of bank-level switching costs (number and type of additional financial products) explain most of this cost premium, while online banking usage reduces inertia. Consistent with theory, I provide evidence that banks incorporate inertia in their pricing as older accounts pay lower rates than comparable newer accounts. Counterfactual policies reducing inertia shift market share to more competitive smaller banks, but only eliminating inertia within banks already results in high potential gains in consumer surplus. This suggests that facilitating bank switching alone might be insufficient to improve consumer choices.

Suggested Citation

Deuflhard, Florian, Quantifying Inertia in Retail Deposit Markets (March 2018). SAFE Working Paper No. 223, Available at SSRN: https://ssrn.com/abstract=3237355 or http://dx.doi.org/10.2139/ssrn.3237355

Florian Deuflhard (Contact Author)

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049

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