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Switching costs and market power in the banking industry: The case of cooperative banks

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  • Egarius, Damien
  • Weill, Laurent

Abstract

We investigate the influence of switching costs in banking for the three largest Eurozone countries (France, Germany, and Italy). We use Shy (2002) approach to measure switching costs on bank-level data from 2006 to 2012. We examine whether cooperative banks have different switching costs than commercial banks. We find lower switching costs for cooperative banks, suggesting that their client-based ownership contributes to reduce incentives to bank managers to lock in customers. We analyse whether the level of switching costs influences the market power of banks, and conclude to a positive relation between switching costs and market power.

Suggested Citation

  • Egarius, Damien & Weill, Laurent, 2016. "Switching costs and market power in the banking industry: The case of cooperative banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 42(C), pages 155-165.
    • Handle: RePEc:eee:intfin:v:42:y:2016:i:c:p:155-165
    DOI: 10.1016/j.intfin.2016.03.007
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    Cited by:

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    2. Chaffai, Mohamed & Coccorese, Paolo, 2023. "Banking market power and its determinants: New insights from MENA countries," Emerging Markets Review, Elsevier, vol. 55(C).
    3. Pietrovito, Filomena & Pozzolo, Alberto Franco, 2023. "Did small banks trade off lending with government bond purchases during the Sovereign debt crisis?," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 666-683.
    4. Musa Abdu & Adamu Jibir, 2019. "Sources of Market Power among Firms in Sub-Saharan Africa: Do Institutions Matter in Competitive Policies?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 24(2), pages 115-148, July-Dec.
    5. Jose E. Gomez-Gonzalez & Sebastian Sanin-Restrepo & Cesar E. Tamayo & Oscar M. Valencia, 2023. "Bank market power and firm finance: evidence from bank and loan-level data," Economic Change and Restructuring, Springer, vol. 56(6), pages 4629-4660, December.
    6. Miah, Mohammad Dulal & Kabir, Md. Nurul & Safiullah, Md, 2020. "Switching costs in Islamic banking: The impact on market power and financial stability," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    7. Takalo, Tuomas, 2019. "Switching costs in the Finnish retail deposit market," Bank of Finland Research Discussion Papers 15/2019, Bank of Finland.
    8. Stenbacka, Rune & Takalo, Tuomas, 2019. "Switching costs and financial stability," Journal of Financial Stability, Elsevier, vol. 41(C), pages 14-24.
    9. Rizkiah, Siti K. & Disli, Mustafa & Salim, Kinan & Razak, Lutfi A., 2021. "Switching costs and bank competition: Evidence from dual banking economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    10. Takalo, Tuomas, 2019. "Switching costs in the Finnish retail deposit market," Research Discussion Papers 15/2019, Bank of Finland.
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    12. Marco Magnani & Fabio M. Manenti & Paola Valbonesi, 2022. "Measuring Switching Costs in the Italian Residential Electricity Market," "Marco Fanno" Working Papers 0258, Dipartimento di Scienze Economiche "Marco Fanno".

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    More about this item

    Keywords

    Switching costs; Market power; Cooperative banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • P13 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Cooperative Enterprises

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