Exploiting old customers and attracting new ones: The case of bank deposit pricing
Recent theoretical contributions suggest that deposit interest rates should be higher in geographic areas characterized by greater in-migration and lower for depositors at banks with greater shares of existing (or so-called “locked-in”) depositors. These hypotheses are tested using a rich data set obtained for the Spanish banking industry. Results confirm that, all else equal, banks offer higher deposit rates in territories characterized by greater in-migration, and also that they tend to offer lower rates, the larger the number of their locked-in depositors. These findings confirm the existence of the trade-off between exploiting old customers and attracting new ones.
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- Timothy H. Hannan & Robert M. Adams, 2011.
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