Do Consumers Pay for One-Stop Banking?
The authors use a specialized revenue function to estimate the revenue economies of scope and determine whether banks providing a broad mix of services are able to capitalize on the potential savings in transaction costs afforded their customers. Bank production costs and consumer consumption expenses are thought to be reduced through relationship banking strategies that cultivate one stop shopping for financial services. Much work has been done on estimates of production synergies that correspond to cost economies of scope. The complementarities in the consumption of bank services is potentially as important for bank profitability but it has yet to be examined in detail. Complementarities arise from reductions in user transaction and search costs associated with consuming financial services jointly from the same bank provider, often at the same location, rather than consuming these services separately from different providers at different locations. If benefits from joint consumption are strong, consumers should be willing to pay for them through higher prices at banks that provide services jointly rather than separately. The authors find no evidence of statistically significant revenue complementarities or fixed revenue effects among banks over 1978-1990. Revenues are no larger when deposits and loans are provided jointly rather than separately, and consumers do not pay for one stop banking. This holds for the average small or large bank as well as those on and off the revenue-efficient frontier. Combining revenue scope results with earlier cost scope findings suggests that synergies between bank deposits and loans are small and concentrated in joint production, rather than joint consumption. Consumers may or may not value one stop banking, but they apparently do not have to pay for it.
|Date of creation:||Aug 1993|
|Date of revision:|
|Contact details of provider:|| Postal: 3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367|
Web page: http://fic.wharton.upenn.edu/fic/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Allen N. Berger & Timothy H. Hannan, 1988.
"The price-concentration relationship in banking,"
Finance and Economics Discussion Series
23, Board of Governors of the Federal Reserve System (U.S.).
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
- Jeffrey A. Clark, 1988. "Economies of scale and scope at depository financial institutions: a review of the literature," Economic Review, Federal Reserve Bank of Kansas City, issue Sep, pages 16-33.
- Hancock, Diana, 1986. "A model of the financial firm with imperfect asset and deposit elasticities," Journal of Banking & Finance, Elsevier, vol. 10(1), pages 37-54, March.
- Loretta J. Mester, 1992.
"Efficiency in the savings and loan industry,"
92-14, Federal Reserve Bank of Philadelphia.
- Loretta J. Mester, . "Efficiency in the Savings and Loan Industry," Rodney L. White Center for Financial Research Working Papers 26-92, Wharton School Rodney L. White Center for Financial Research.
- Pulley, Lawrence B & Humphrey, David B, 1993. "The Role of Fixed Costs and Cost Complementarities in Determining Scope Economies and the Cost of Narrow Banking Proposals," The Journal of Business, University of Chicago Press, vol. 66(3), pages 437-62, July.
- John H. Boyd & Edward C. Prescott, 1985.
87, Federal Reserve Bank of Minneapolis.
- Benston, George J & Hanweck, Gerald A & Humphrey, David B, 1982.
"Scale Economies in Banking: A Restructuring and Reassessment,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 14(4), pages 435-56, November.
- George J. Benston & Gerald A. Hanweck & David B. Humphrey, 1981. "Scale economies in banking: a restructuring and reassessment," Research Papers in Banking and Financial Economics 53, Board of Governors of the Federal Reserve System (U.S.).
- Timothy H. Hannan & J. Nellie Liang, 1991.
"Inferring market power from time-series data: the case of the banking firm,"
Finance and Economics Discussion Series
147, Board of Governors of the Federal Reserve System (U.S.).
- Hannan, Timothy H. & Liang, J. Nellie, 1993. "Inferring market power from time-series data : The case of the banking firm," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 205-218, June.
- Roller, Lars-Hendrik, 1990. "Proper Quadratic Cost Functions with an Application to the Bell System," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 202-10, May.
- Hannan, Timothy H., 1991. "Bank commercial loan markets and the role of market structure: evidence from surveys of commercial lending," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 133-149, February.
- Allen N. Berger & Gerald A. Hanweck & David B. Humphrey, 1986.
"Competitive viability in banking: scale, scope, and product mix economies,"
Research Papers in Banking and Financial Economics
82, Board of Governors of the Federal Reserve System (U.S.).
- Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
- Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April.
- English, M. & Grosskopf, S. & Hayes, K. & Yaisawarng, S., 1993. "Output allocative and technical efficiency of banks," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 349-366, April.
- Allen N. Berger & Gregory F. Udell, 1993. "Lines of credit, collateral, and relationship lending in small firm finance," Finance and Economics Discussion Series 93-9, Board of Governors of the Federal Reserve System (U.S.).
- Walter Y. Oi, 1971. "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 85(1), pages 77-96.
- Pulley, Lawrence B & Braunstein, Yale M, 1992. "A Composite Cost Function for Multiproduct Firms with an Application to Economies of Scope in Banking," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 221-30, May.
- Allen N. Berger & David B. Humphrey, 1990.
"Measurement and efficiency issues in commercial banking,"
Finance and Economics Discussion Series
151, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & David B. Humphrey, 1992. "Measurement and Efficiency Issues in Commercial Banking," NBER Chapters, in: Output Measurement in the Service Sectors, pages 245-300 National Bureau of Economic Research, Inc.
- Loretta J. Mester, 1987. "Efficient production of financial services: scale and scope economies," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 15-25.
- Ferrier, Gary D. & Grosskopf, Shawna & Hayes, Kathy J. & Yaisawarng, Suthathip, 1993. "Economies of diversification in the banking industry : A frontier approach," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 229-249, April.
When requesting a correction, please mention this item's handle: RePEc:wop:pennin:94-01. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.