Demand Estimation and Consumer Welfare in the Banking Industry

55 Pages Posted: 26 Mar 2003

Date Written: November 6, 2002


This paper estimates a structural demand model for commercial bank deposit services. Following the discrete choice literature, consumer decisions are based on prices and bank characteristics. The results, based on the US for 1993-1999, indicate that, with respect to prices, consumers respond to deposit rates, and to a lesser extent, to account fees, in choosing a depository institution. Moreover, consumers respond favorably to the branch staffing and geographic density, as well as to the bank's age, size, and geographic diversification. In light of the banks' responses to regulatory changes throughout the period, most markets experience a slight increase in welfare.

Keywords: Demand, discrete choice, consumer welfare, product differentiation, market power, banking

JEL Classification: G21, L11, L89, C25

Suggested Citation

Dick, Astrid Andrea, Demand Estimation and Consumer Welfare in the Banking Industry (November 6, 2002). Available at SSRN: or

Astrid Andrea Dick (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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