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Switching Costs in the Deposit Market

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  • Zephirin, M G
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    Abstract

    This paper derives switching costs endogenously as a trade-off between service quality and the interest rate faced by a depositor who values the services provided by banks. In a market with known interest rates and uncertain service, the depositor must locate satisfactory bank service. The depositor who establishes a good reputation with the satisfactory bank enjoys improved relationship-specific service. The improvement produces utility gains from remaining with the bank. These gains result in trade-off. In the long-run of this market, when banks are forward looking, such switching costs facilitate monopsonistic determination of deposit rates. Copyright 1994 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 104 (1994)
    Issue (Month): 423 (March)
    Pages: 455-61

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    Handle: RePEc:ecj:econjl:v:104:y:1994:i:423:p:455-61

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    Cited by:
    1. Elizabeth K. Kiser, 2002. "Household switching behavior at depository institutions: evidence from survey data," Finance and Economics Discussion Series 2002-44, Board of Governors of the Federal Reserve System (U.S.).
    2. James Gilkeson & John List & Craig Ruff, 1999. "Evidence of Early Withdrawal in Time Deposit Portfolios," Journal of Financial Services Research, Springer, vol. 15(2), pages 103-122, March.
    3. Elizabeth Kiser, 2002. "Predicting Household Switching Behavior and Switching Costs at Depository Institutions," Review of Industrial Organization, Springer, vol. 20(4), pages 349-365, June.

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