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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Demand Estimation and Consumer Welfare in the Banking Industry
Astrid A. Dick

Abstract: This paper estimates a structural demand model for commercial bank deposit services. Following the discrete choice literature, consumer decisions are based on prices and bank characteristics. The results, based on the U.S. for 1993-1999, indicate that, with respect to prices, consumers respond to deposit rates, and to a lesser extent, to account fees, in choosing a depository institution. Moreover, consumers respond favorably to the branch staffing and geographic density, as well as to the bank's age, size, and geographic diversification. In light of the banks' responses to regulatory changes throughout the period, most markets experience a slight increase in welfare.

Keywords: Demand, discrete choice, consumer welfare, product differentiation, market power, banking

Full paper (422 KB PDF)

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Last update: December 30, 2002