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Switching Costs in the Market for Personal Current Accounts: Some Evidence for the United Kingdom

57 Pages Posted: 5 Apr 2006 Last revised: 21 May 2011

Céline Gondat-Larralde

Bank of England, Centre for Central Banking Studies

Erlend W. Nier

International Monetary Fund (IMF)

Date Written: March 1, 2006

Abstract

This paper provides an analysis of the competitive process in the market for personal current accounts in the United Kingdom. Using survey data, we first describe some stylised developments in this market over our sample period (1996-2001). We find a gradual change in the distribution of market shares over time. This contrasts with a marked dispersion in price, which appears to persist through time. Analysing the evolution of market shares, we address two key questions: (i) Are bank market shares responding to price differentials? (ii) If not, which type of imperfect competition best fits the data? Our conclusions point to the existence of customer switching costs as a key determinant of the nature of competition in the market for personal current accounts. The results of this study are therefore broadly supportive of a number of recent initiatives to facilitate switching bank accounts in the United Kingdom.

Keywords: Microeconomics, retail banking, competition, switching, price elasticity

JEL Classification: D12, D43, D83, G21, L13

Suggested Citation

Gondat-Larralde, Céline and Nier, Erlend W., Switching Costs in the Market for Personal Current Accounts: Some Evidence for the United Kingdom (March 1, 2006). Bank of England Working Paper No. 292. Available at SSRN: https://ssrn.com/abstract=894882 or http://dx.doi.org/10.2139/ssrn.894882

Céline Gondat-Larralde (Contact Author)

Bank of England, Centre for Central Banking Studies ( email )

HO7, B-D
Threadneedle street
London, London EC2R 8AH
United Kingdom

Erlend W. Nier

International Monetary Fund (IMF) ( email )

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