Switching Costs in the Deposit Market
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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Volume (Year): 104 (1994)
Issue (Month): 423 (March)
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