Elizabeth K. Kiser

Who Competes with Whom? The Case of Depository Institutions

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 consumers 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. Copyright 2007 Blackwell Publishing Ltd..

Predicting Household Switching Behavior and Switching Costs at Depository Institutions

This paper uses new survey data to investigate the covariates of self-reported switching costs and switching behavior by deposit account holders. Factors affecting geographic mobility appear to be most important in explaining the duration of deposit relationships. Both younger and older respondents are more likely than others to be at their first bank ever, suggesting a cohort effect in deposit relationships. Households reporting switching costs, net of the benefits from switching, are less likely than others to have stayed with a bank for prices or customer service, suggesting that switching costs may decrease price sensitivity. Switching costs appear more severe for households with high income or education and for households with very low income or minority ethnicity. These findings imply that banking markets characterized by such households may present greater entry costs for new firms.

Modeling the Whole Firm: The Effect of Multiple Inputs and Financial Intermediation on Bank Deposit Rates

Empirical studies of price competition typically analyze the direct effects of market structure, cost, and local demand on prices; this approach has been applied widely to studies of bank deposit rates. However, the theory of the banking firm suggests that substitutability between sources of deposits and conditions in the bank loan market should also affect the pricing of retail deposits. This paper develops a theoretical model to incorporate these effects, and tests the predictions empirically using institution-level deposit rate data from Bank Rate Monitor. The results suggest that the cost of large-scale deposits affects how banks price retail deposits, and that conditions in lending markets feed back into retail deposit rates.

Heterogeneity in Price Sensitivity and Retail Price Discrimination

The nature of heterogeneity in price sensitivity has considerable implications for research in the study of retail price formation. New data collection technologies have become available that allow firms to gather detailed information on household demographics and purchase histories. Using these new methods, it is increasingly feasible for a firm to perform demand estimation at the demographic group or even the household level. With household demand estimates in hand, a firm can offer individualized discounts, engaging in nearperfect price discrimination. The nature of heterogeneity in household price response has implications for how firms might be able to extract surplus from consumers through individualized pricing. Price discrimination has long held the interest of economists interested in the pricing of retail food products. The types of price discrimination traditionally discussed in food retailing are secondand third-degree price discrimination. Second-degree price discrimination involves self-selection on the part of consumers, where sellers offer price/quantity or price/quality bundles designed to attract different consumer types. Well-known examples of second-degree price discrimination are quantity discounts or coupons issued in newspaper supplements, magazines, or mass mailings. Third-degree price discrimination arises when retailers charge different prices to different market segments according to the demand elasticity of each segment. For example, retailers might charge different prices at different retail outlets or offer discounts to identifiable groups, such as students or senior citizens.