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Advertising and pricing at multiple-output firms: evidence from U.S. thrift institutions

  • Robert DeYoung
  • Evren Örs
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    We derive five hypotheses regarding market competition, price, and advertising from a theoretical model of a profit maximizing depository institution, and test these conjectures in a simultaneous system of deposit interest rates and advertising expenditures for a data panel of 1,867 thrift institutions that offer 13 different deposit products in 666 local markets in the U.S. between 1994 and 2000. We find some support for each of our hypotheses – branding, information, Dorfman-Steiner, structure-advertising, and structure-price – with the strength of the results often depending on the attributes of the deposit products or the characteristics of the thrifts.

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    Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-04-25.

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    Date of creation: 2004
    Date of revision:
    Handle: RePEc:fip:fedhwp:wp-04-25
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    7. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
    8. Richard J. Rosen, 2003. "Banking market conditions and deposit interest rates," Working Paper Series WP-03-19, Federal Reserve Bank of Chicago.
    9. Timothy H. Hannan, 2003. "The impact of credit unions on the rates offered for retail deposits by banks and thrift institutions," Finance and Economics Discussion Series 2003-06, Board of Governors of the Federal Reserve System (U.S.).
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    16. DeYoung, Robert & Hasan, Iftekhar, 1998. "The performance of de novo commercial banks: A profit efficiency approach," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 565-587, May.
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    19. Klein, Michael A. & Murphy, Neil B., 1971. "The Pricing of Bank Deposits: A Theoretical and Empirical Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 6(02), pages 747-761, March.
    20. Arndt, Johan & Simon, Julian L, 1983. "Advertising and Economies of Scale: Critical Comments on the Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 32(2), pages 229-42, December.
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    22. Thomas, Louis A., 1999. "Incumbent firms' response to entry: Price, advertising, and new product introduction," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 527-555, May.
    23. Hasan, Iftekhar & Hunter, William Curt & MathisIII, Roswell E., 2000. "Promotional Expenditures, Market Competition, and Thrift Behavior," Journal of Business Research, Elsevier, vol. 50(2), pages 177-184, November.
    24. John D. Wolken & Frederick W. Derrick, 1986. "Advertising, market power and non-price competition: evidence from commercial banking," Working Papers in Banking, Finance and Microeconomics 86-3, Board of Governors of the Federal Reserve System (U.S.).
    25. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
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