WHO COMPETES WITH WHOM? THE CASE OF DEPOSITORY INSTITUTIONS

Authors


  • *The views expressed are those of the authors and do not necessarily reflect the position of the Federal Reserve System, the Federal Reserve Board, or its staff. The authors would like to thank Dean Amel, Ron Borzekowski, Nicola Cetorelli, Andrew Cohen, Astrid Dick, Tim Hannan, Moshe Kim, Myron Kwast, Craig Peters, Steve Pilloff, Robin Prager, Frank Verboven, the participants in the 2003 Applied Microeconomics System Conference and the 2003 Conference on Banking Competition in Leuven, Belgium, and two anonymous referees.

Abstract

The willingness of consumers to substitute between banks and thrifts and between multimarket and single-market institutions is of strong interest to policymakers, yet little empirical work exists in this area. We estimate a structural model of consumer choice of depository institutions using a broadly representative panel data set covering the U.S. from 1990–2001. Using a flexible framework, we uncover utility parameters that affect a consumer's institution choice and measure the degree of market segmentation for two institutional subgroups. Our estimated parameters, elasticities and policy experiments suggest limited substitutability between banks and thrifts and between multimarket and single-market institutions, especially in urban markets.

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