Meeting Targets in Competitive Product Markets

62 Pages Posted: 6 Feb 2022

See all articles by Emilio Bisetti

Emilio Bisetti

Hong Kong University of Science and Technology (HKUST)

Stephen A. Karolyi

Office of the Comptroller of the Currency

Date Written: December 18, 2021

Abstract

We show that public banks cut deposit rates to meet short-term performance targets. This target-induced rate cutting is more pronounced for inelastic deposit products, and leads to long-lasting outflows in products with high price elasticity. Local competitors, including purely private banks that are not directly exposed to capital market pressure, react by increasing elastic deposits' rates, compensating depositors for switching. Our results provide new evidence that performance targeting incentives can affect consumer product prices, and suggest that product market structure and competition may provide a natural check on public firms' efforts to meet short-term targets.

Keywords: Targeting, Product Prices, Deposit Rates, Competitive Spillovers

JEL Classification: G14, G21

Suggested Citation

Bisetti, Emilio and Karolyi, Stephen A., Meeting Targets in Competitive Product Markets (December 18, 2021). Available at SSRN: https://ssrn.com/abstract=3988507 or http://dx.doi.org/10.2139/ssrn.3988507

Emilio Bisetti (Contact Author)

Hong Kong University of Science and Technology (HKUST) ( email )

Clear Water Bay, Kowloon
Hong Kong

Stephen A. Karolyi

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

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