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
Date Written: March 1, 2006
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: Suggested Citation
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By Jim Burke