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Switching Costs in the Deposit Market

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  • Zephirin, M G

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.

Suggested Citation

  • Zephirin, M G, 1994. "Switching Costs in the Deposit Market," Economic Journal, Royal Economic Society, vol. 104(423), pages 455-461, March.
    • Handle: RePEc:ecj:econjl:v:104:y:1994:i:423:p:455-61
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    Cited by:

    1. Md. Hamid Uddin & Md. Hakim Ali & Mohammad Kabir Hassan, 2020. "Cybersecurity hazards and financial system vulnerability: a synthesis of literature," Risk Management, Palgrave Macmillan, vol. 22(4), pages 239-309, December.
    2. 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.).
    3. Beestermöller, Matthias Gerhard & Jessen-Thiesen, Levke & Sandkamp, Alexander-Nikolai, 2023. "Striking evidence: The impact of railway strikes on competition from intercity bus services in Germany," Kiel Working Papers 2251, Kiel Institute for the World Economy (IfW Kiel).
    4. Elizabeth Kiser, 2002. "Predicting Household Switching Behavior and Switching Costs at Depository Institutions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(4), pages 349-365, June.
    5. Gerasimos T. Soldatos & Erotokritos Varelas, 2023. "Are Banks Too Many? A Theoretical Possibility and a Policy Issue," Journal of Economic Analysis, Anser Press, vol. 2(1), pages 37-54, March.
    6. James Gilkeson & John List & Craig Ruff, 1999. "Evidence of Early Withdrawal in Time Deposit Portfolios," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(2), pages 103-122, March.
    7. Chakravarty, Sugato & Feinberg, Richard & Rhee, Eun-Young, 2004. "Relationships and individuals' bank switching behavior," Journal of Economic Psychology, Elsevier, vol. 25(4), pages 507-527, August.
    8. Nicola Branzoli & Edoardo Rainone & Ilaria Supino, 2023. "The role of banks' technology adoption in credit markets during the pandemic," Temi di discussione (Economic working papers) 1406, Bank of Italy, Economic Research and International Relations Area.
    9. Brown, Martin & Guin, Benjamin & Morkoetter, Stefan, 2020. "Deposit withdrawals from distressed banks: Client relationships matter," Journal of Financial Stability, Elsevier, vol. 46(C).
    10. Nicola Branzoli, 2016. "Price dispersion and consumer inattention: evidence from the market of bank accounts," Temi di discussione (Economic working papers) 1082, Bank of Italy, Economic Research and International Relations Area.
    11. Allen N. Berger & Astrid A. Dick, 2007. "Entry into Banking Markets and the Early‐Mover Advantage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 775-807, June.
    12. Gerasimos T. Soldatos & Erotokritos Varelas, 2023. "Are Banks Too Many? A Theoretical Possibility and a Policy Issue," Journal of Economic Analysis, Anser Press, vol. 2(1), pages 36-52, February.

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