Competition Between Mail and Electronic Substitutes in the Financial Sector: A Hotelling Approach
AbstractWe build a model where two banks compete for the patronage of consumers by offering them, among other services and products, two forms of transactional media: paper statements and electronic substitutes. Both banks and both products are horizontally di¤erentiated and modeled à la Hotelling(1929). Assuming symmetry of consumer preferences (over banks and, independently, over the two transactional media) and of bankss costs, we obtain that the unique pro t-maximizing symmetrical prices reect both the transactional media marginal costs and the intensity of competition between banks. Most notably, the intensity of consumers preferences for one variant of transactional medium over another has no inuence on the pro t-maximizing media prices. Also, there is total pass-through of increases in input prices (such as mail price for paper statements) into prices paid by nal consumers.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 713.
Date of creation: 13 Mar 2012
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- Cremer, Helmuth & De Donder, Philippe & Dudley, Paul & Rodriguez, Frank, 2012. "Competition Between Mail and Electronic Substitutes in the Financial Sector: A Hotelling Approach," TSE Working Papers 12-298, Toulouse School of Economics (TSE).
- NEP-ALL-2012-05-08 (All new papers)
- NEP-BAN-2012-05-08 (Banking)
- NEP-COM-2012-05-08 (Industrial Competition)
- NEP-IND-2012-05-08 (Industrial Organization)
- NEP-MKT-2012-05-08 (Marketing)
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