In this paper, we have compare the price and income elasticities of demand between cars of Toyota against Nissan and Ford. The main findings are that: 1) Nissan and Ford are treated as more luxurious than their Toyota counter parts for small cars. For very large cars, on the other hand, price elasticities are positive. 2) The small cars are all treated as inferior goods, but not the very large cars. 3) Comparing between 2014-15 and 2016-17, the small cars are treated as less inferior and the large cars are treated as less luxurious. These results are not only important to point out the changing behaviors of Thai consumers. They suggest the change in the state of the economy after 2014. The main event in 2014 is the start of the NCPO government on May, 2014. However, this study suffers from several limitations. They are as the following: 1) Car consumption is not only dependent on income. There are factors such as popularity, sales promotion, and the continuously launch of new cars. People may tend to appreciate newly released cars more. 2) Data is limited. The data is not from the whole year. This is because the inconsistency of the data source. However, this is inevitable because a more detail reports of car quantities are the companies’ secret. 3) Car prices do not usually change. The percentage change in cars price will be small and causing the elasticity to be very large, despite a relatively small change in the quantity bought. Therefore, this study can be expanded using a more complex analysis including these factors. This study shows that, overall the elasticity of car demand is theoretical sounding, but the pattern of car consumption cannot be studied using price or income alone.
{"title":"Analysis on Car Elasticities: A Comparison on Toyota and Other Brands in Thailand","authors":"Ployapilin Buaban, P. Kongsomboon, T. Sengsae","doi":"10.2139/ssrn.2984757","DOIUrl":"https://doi.org/10.2139/ssrn.2984757","url":null,"abstract":"In this paper, we have compare the price and income elasticities of demand between cars of Toyota against Nissan and Ford. The main findings are that: \u00001) Nissan and Ford are treated as more luxurious than their Toyota counter parts for small cars. For very large cars, on the other hand, price elasticities are positive. \u00002) The small cars are all treated as inferior goods, but not the very large cars. \u00003) Comparing between 2014-15 and 2016-17, the small cars are treated as less inferior and the large cars are treated as less luxurious. \u0000These results are not only important to point out the changing behaviors of Thai consumers. They suggest the change in the state of the economy after 2014. The main event in 2014 is the start of the NCPO government on May, 2014. \u0000However, this study suffers from several limitations. They are as the following: \u00001) Car consumption is not only dependent on income. There are factors such as popularity, sales promotion, and the continuously launch of new cars. People may tend to appreciate newly released cars more. \u00002) Data is limited. The data is not from the whole year. This is because the inconsistency of the data source. However, this is inevitable because a more detail reports of car quantities are the companies’ secret. \u00003) Car prices do not usually change. The percentage change in cars price will be small and causing the elasticity to be very large, despite a relatively small change in the quantity bought. \u0000Therefore, this study can be expanded using a more complex analysis including these factors. This study shows that, overall the elasticity of car demand is theoretical sounding, but the pattern of car consumption cannot be studied using price or income alone.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89300522","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is an ongoing global debate on network neutrality, a principle that prohibits Internet Service Providers (ISPs) such as Comcast from charging content providers like Netflix for preferential delivery of their content to end-users. In this paper, we shed new light on the debate by developing and analyzing a two-sided model of the Internet that not only allows the ISP to charge both end-users and content providers, but, in contrast to previous work, also incorporates the ability of content providers to charge end-users directly. We show that in this scenario, which is more realistic in today’s world, all players are equally well off with or without network neutrality. This is in stark contrast to the findings obtained in a scenario where we limit content providers to rely on advertising alone for revenue; in such a context, content providers are worse off but the ISP and end-users are better off without network neutrality. We show that our results continue to hold when the content providers command different advertising rates, suggesting that removing network neutrality does not favor stronger content providers over weaker ones. We also study a scenario where only one content provider can charge end-users directly while the other relies only on advertising revenue. In this scenario, while the players are no longer indifferent between the two regimes, content providers can be better off and total surplus can reduce without network neutrality, which is in contrast to the findings obtained when both content providers are constrained to rely only on advertising for revenue.
{"title":"The Effect of Content Providers' Ability to Charge End-Users on the Network Neutrality Debate","authors":"Abhinav Uppal, J. Raju","doi":"10.2139/ssrn.2994107","DOIUrl":"https://doi.org/10.2139/ssrn.2994107","url":null,"abstract":"There is an ongoing global debate on network neutrality, a principle that prohibits Internet Service Providers (ISPs) such as Comcast from charging content providers like Netflix for preferential delivery of their content to end-users. In this paper, we shed new light on the debate by developing and analyzing a two-sided model of the Internet that not only allows the ISP to charge both end-users and content providers, but, in contrast to previous work, also incorporates the ability of content providers to charge end-users directly. We show that in this scenario, which is more realistic in today’s world, all players are equally well off with or without network neutrality. This is in stark contrast to the findings obtained in a scenario where we limit content providers to rely on advertising alone for revenue; in such a context, content providers are worse off but the ISP and end-users are better off without network neutrality. We show that our results continue to hold when the content providers command different advertising rates, suggesting that removing network neutrality does not favor stronger content providers over weaker ones. We also study a scenario where only one content provider can charge end-users directly while the other relies only on advertising revenue. In this scenario, while the players are no longer indifferent between the two regimes, content providers can be better off and total surplus can reduce without network neutrality, which is in contrast to the findings obtained when both content providers are constrained to rely only on advertising for revenue.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81141081","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In the last decade, many European countries have seen a sharp increase in the number of automated fueling stations. We study the effect of this process innovation on prices at stations that are automated and their competitors using a difference-in-differences matching strategy. Our estimates show that prices at automated stations drop by 1.0 to 2.1% immediately after conversion and stabilize at this lower level. We find no indication of competitive spillover effects to neighboring sites at the conventional significance levels. Other than previous studies, our estimates do not reveal a difference in impact between early and later adopters of automation.
{"title":"The Impact of Process Innovation on Prices: Evidence from Automated Fuel Retailing in the Netherlands","authors":"A. Soetevent, Tadas Bruzikas","doi":"10.2139/ssrn.2968348","DOIUrl":"https://doi.org/10.2139/ssrn.2968348","url":null,"abstract":"In the last decade, many European countries have seen a sharp increase in the number of automated fueling stations. We study the effect of this process innovation on prices at stations that are automated and their competitors using a difference-in-differences matching strategy. Our estimates show that prices at automated stations drop by 1.0 to 2.1% immediately after conversion and stabilize at this lower level. We find no indication of competitive spillover effects to neighboring sites at the conventional significance levels. Other than previous studies, our estimates do not reveal a difference in impact between early and later adopters of automation.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"15 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-05-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76167061","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the pricing implications of management earnings forecasts by taking advantage of the unique corporate disclosure practice in Japan, where listed firms regularly announce earnings forecasts upon requests by stock exchanges and the press. A calendar-time strategy using the forecasted earnings-to-price ratio earns a premium comparable to, and separate from, the value premium based on the book-to-market ratio. The premium is robust to a variety of factor and characteristic controls including realized and forecasted earnings momentum. The result is more consistent with characteristic pricing than factor pricing and challenges risk-based explanation.
{"title":"Looking Forward: Management Earnings Forecasts and the Value Effect","authors":"Takatoshi Hiraki, Akiko Watanabe, M. Watanabe","doi":"10.2139/ssrn.1989986","DOIUrl":"https://doi.org/10.2139/ssrn.1989986","url":null,"abstract":"We examine the pricing implications of management earnings forecasts by taking advantage of the unique corporate disclosure practice in Japan, where listed firms regularly announce earnings forecasts upon requests by stock exchanges and the press. A calendar-time strategy using the forecasted earnings-to-price ratio earns a premium comparable to, and separate from, the value premium based on the book-to-market ratio. The premium is robust to a variety of factor and characteristic controls including realized and forecasted earnings momentum. The result is more consistent with characteristic pricing than factor pricing and challenges risk-based explanation.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"70 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80372759","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we analyze where value is added along supply chains on a sample of more than 2 million of firms in the European Union. We detect a non-linear U-shaped relationship between the value added generated by firms and their position on a productive sequence, for which tasks at the top and at the bottom show higher value added. Our findings are in line with previous hypotheses on the existence of a so-called 'smile curve', resumed by both business and economic studies and discussed at length in international fora. Our results are robust to different empirical strategies for flexible functional forms. As far as we know, ours is the first firm-level successful attempt to test for value generation along supply chains. Further, we find empirical support for a phenomenon of domestic retention of value added by MNEs, which may prefer keeping at home the tasks at higher potential to safeguard present and future competitive advantages. By country, intermediate stages of production are at higher value when performed by foreign as liates, whereas domestic producers retain higher value at the very top and at the very bottom of the supply chain, organized either as independent suppliers or as domestic affiliates. Although an economic theory is still missing for explaining how and why value generation is non-linear along a typical technological sequence, here we argue that a microfoundation with firm-level data is useful for understanding the growth potential of countries' specialization patterns along different segments of supply chains.
{"title":"The ‘Smile Curve’: Where Value Is Added Along Supply Chains","authors":"Davide Del Prete, Armando Rungi","doi":"10.2139/ssrn.3085941","DOIUrl":"https://doi.org/10.2139/ssrn.3085941","url":null,"abstract":"In this paper we analyze where value is added along supply chains on a sample of more than 2 million of firms in the European Union. We detect a non-linear U-shaped relationship between the value added generated by firms and their position on a productive sequence, for which tasks at the top and at the bottom show higher value added. Our findings are in line with previous hypotheses on the existence of a so-called 'smile curve', resumed by both business and economic studies and discussed at length in international fora. Our results are robust to different empirical strategies for flexible functional forms. As far as we know, ours is the first firm-level successful attempt to test for value generation along supply chains. Further, we find empirical support for a phenomenon of domestic retention of value added by MNEs, which may prefer keeping at home the tasks at higher potential to safeguard present and future competitive advantages. By country, intermediate stages of production are at higher value when performed by foreign as liates, whereas domestic producers retain higher value at the very top and at the very bottom of the supply chain, organized either as independent suppliers or as domestic affiliates. Although an economic theory is still missing for explaining how and why value generation is non-linear along a typical technological sequence, here we argue that a microfoundation with firm-level data is useful for understanding the growth potential of countries' specialization patterns along different segments of supply chains.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"15 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84187312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider optional TOU (time-of-use) pricing for residential consumers as an alternative to a single TOU or flat rate structure offered by a publicly regulated electricity supplier. A general equilibrium model is developed and used to explore and quantify the effects of optional pricing on welfare, consumption, and production costs. The model assumes that households can be classified into internally homogeneous groups with differing utility functions, incomes, demand elasticities, and committed consumption requirements. Substitution for electricity among TOU periods and between electricity and other goods is allowed for in the model on the demand side, and differing TOU-specific marginal costs on the supply side. The supplier in the model offers to each household a menu of possible rate sets obtained by maximizing a collective welfare function subject to three types of restriction: Pareto efficiency (no household is worse off under the proposed pricing scheme than under the current pricing scheme); incentive compatibility (every household weakly prefers its set of rates to the sets chosen by other households); breakeven supplier revenue (aggregate revenue must equal aggregate cost). The model is calibrated realistically with three household groups and three distinct TOU costing periods, and used in a series of simulation experiments, including experiments with alternative demand elasticities and marginal cost parameters. The use of optional pricing is shown to increase overall consumer welfare and reduce average production cost. However, the distribution of welfare effects can be uneven, with the highest income group dominating the market to the relative disadvantage of the lowest group. To deal with that situation an alternative strategy with a targeted rate structure for the lowest income group is proposed, corresponding to a modified version of the model specified in which some incentive compatibility restrictions are relaxed. Simulations show that the strategy can be effective in bringing about a more equitable distribution of welfare gains while still maintaining optional TOU pricing.
{"title":"One Size May Not Fit All: Welfare Benefits and Cost Reductions with Differentiated Household Electricity Rates in a General Equilibrium Model","authors":"Farhad Daruwala, F. Denton, D. Mountain","doi":"10.2139/ssrn.2928127","DOIUrl":"https://doi.org/10.2139/ssrn.2928127","url":null,"abstract":"We consider optional TOU (time-of-use) pricing for residential consumers as an alternative to a single TOU or flat rate structure offered by a publicly regulated electricity supplier. A general equilibrium model is developed and used to explore and quantify the effects of optional pricing on welfare, consumption, and production costs. The model assumes that households can be classified into internally homogeneous groups with differing utility functions, incomes, demand elasticities, and committed consumption requirements. Substitution for electricity among TOU periods and between electricity and other goods is allowed for in the model on the demand side, and differing TOU-specific marginal costs on the supply side. The supplier in the model offers to each household a menu of possible rate sets obtained by maximizing a collective welfare function subject to three types of restriction: Pareto efficiency (no household is worse off under the proposed pricing scheme than under the current pricing scheme); incentive compatibility (every household weakly prefers its set of rates to the sets chosen by other households); breakeven supplier revenue (aggregate revenue must equal aggregate cost). The model is calibrated realistically with three household groups and three distinct TOU costing periods, and used in a series of simulation experiments, including experiments with alternative demand elasticities and marginal cost parameters. The use of optional pricing is shown to increase overall consumer welfare and reduce average production cost. However, the distribution of welfare effects can be uneven, with the highest income group dominating the market to the relative disadvantage of the lowest group. To deal with that situation an alternative strategy with a targeted rate structure for the lowest income group is proposed, corresponding to a modified version of the model specified in which some incentive compatibility restrictions are relaxed. Simulations show that the strategy can be effective in bringing about a more equitable distribution of welfare gains while still maintaining optional TOU pricing.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"6 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74878488","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The medium-sized firms (MEs) are the cutting edge of the Italian manufacturing sector. They have a crucial role in influencing the behavior of the local systems whose they are part (2/3 of the total firms are located in industrial districts). This study investigates the drivers of Italian MEs’ productivity, a fundamental aspect for assessing their ability to compete successfully. The classical approach (i.e. TFP) in measuring productivity is inapplicable to MEs, whose business model is characterized by: i) specialized production at the leading technological edge; ii) organization based on vertical and horizontal supply chains, where the major players are small companies, specialized on single production phase; iii) marketing strategy focused on market niches, which are created/dominated thanks to product differentiation and continuous innovation and where MEs impose premium prices. The empirical evidence shows that: i) the RTS are not constant, but decreasing and size and productivity are inversely related; ii) the quality of the workforce is the major driver of productivity: companies that employ a low-salary workforce are less productive than those that use more skilled and costlier workers; iii) territories matter: knowledge-intensive service firms as well as infrastructures and managerial skills have a positive impact on productivity.
{"title":"Productivity, Competitiveness, and Territories of the Italian Medium-Size Companies","authors":"F. Coltorti, D. Venanzi","doi":"10.2139/ssrn.2900336","DOIUrl":"https://doi.org/10.2139/ssrn.2900336","url":null,"abstract":"The medium-sized firms (MEs) are the cutting edge of the Italian manufacturing sector. They have a crucial role in influencing the behavior of the local systems whose they are part (2/3 of the total firms are located in industrial districts). This study investigates the drivers of Italian MEs’ productivity, a fundamental aspect for assessing their ability to compete successfully. The classical approach (i.e. TFP) in measuring productivity is inapplicable to MEs, whose business model is characterized by: i) specialized production at the leading technological edge; ii) organization based on vertical and horizontal supply chains, where the major players are small companies, specialized on single production phase; iii) marketing strategy focused on market niches, which are created/dominated thanks to product differentiation and continuous innovation and where MEs impose premium prices. The empirical evidence shows that: i) the RTS are not constant, but decreasing and size and productivity are inversely related; ii) the quality of the workforce is the major driver of productivity: companies that employ a low-salary workforce are less productive than those that use more skilled and costlier workers; iii) territories matter: knowledge-intensive service firms as well as infrastructures and managerial skills have a positive impact on productivity.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"143 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75045818","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigated the effect of total quality management factors on firm's operational performance in Korea. We used a regression linear analysis to conduct this research study. The samples used to conduct this analysis were selected form World Bank's Business Environment and Enterprise Performance Survey (BEEPS) data. A total of 437 samples were selected from this business environment. This study has shown that few selected TQM factors were related to performance. The results revealed that the primary obstacles were based on some hypothetical assessment in the survey questionnaire. However, it is recommended that firms should continue implementing TQM with all variables to improve performance.
{"title":"Effects of Total Quality Management (TQM) on Firm's Operational Performance (South Korea)","authors":"K. Samson","doi":"10.2139/ssrn.2922208","DOIUrl":"https://doi.org/10.2139/ssrn.2922208","url":null,"abstract":"This study investigated the effect of total quality management factors on firm's operational performance in Korea. We used a regression linear analysis to conduct this research study. The samples used to conduct this analysis were selected form World Bank's Business Environment and Enterprise Performance Survey (BEEPS) data. A total of 437 samples were selected from this business environment. This study has shown that few selected TQM factors were related to performance. The results revealed that the primary obstacles were based on some hypothetical assessment in the survey questionnaire. However, it is recommended that firms should continue implementing TQM with all variables to improve performance.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"77 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-01-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73983355","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2017-01-01DOI: 10.5958/2249-7323.2017.00120.1
Indrajit Mallick
This paper studies optimal banking structure under demand externality. Firms operate under demand externalities. Investors choose the optimal banking coalition sizes and then try to maximize profits by optimal lending under Cournot competition. The focus of the paper is on optimal banking structure which maximizes bank profitability. It is shown that due to the demand externality facing firms, the privately optimal bank coalition has the minimum size but high lending.
{"title":"Optimal Banking Structure Under Demand Externality","authors":"Indrajit Mallick","doi":"10.5958/2249-7323.2017.00120.1","DOIUrl":"https://doi.org/10.5958/2249-7323.2017.00120.1","url":null,"abstract":"This paper studies optimal banking structure under demand externality. Firms operate under demand externalities. Investors choose the optimal banking coalition sizes and then try to maximize profits by optimal lending under Cournot competition. The focus of the paper is on optimal banking structure which maximizes bank profitability. It is shown that due to the demand externality facing firms, the privately optimal bank coalition has the minimum size but high lending.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"84 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75691325","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper develops a structural demand model for US retail banking services in which consumers have preference over the geographical convenience of their banks' networks. The model accounts for the fact that (i) consumers spend time in both home and workplace and may need to access their bank's services at any time of the day, and (ii) consumers do not consider services provided by different bank networks as perfect substitutes, therefore prefer to use branches of their own banks. I estimate the model using a detailed nationwide worker flow dataset that tracks consumers by residence and workplace. My results confirm that consumers value bank networks for their proximity to multiple locations. I conduct a counterfactual experiment to quantify the effect of this demand motive on bank deposits. After breaking the compatibility of services among branches within the same network, choosing a multi-branch bank no longer necessarily reduces consumers' expected travel distance, which takes away the potential gain from larger networks. For the average city and bank in the sample, each additional branch implies an increase of 0.1 percentage points in the extra market share generated from the network effect, which amounts to roughly one million dollars in deposits. These results on firm performance, along with the corresponding consumer welfare analysis, provide valuable insights to anti-trust regulators in evaluating within-market horizontal mergers in the presence of spatial network competition.
{"title":"Consumer Valuation of Network Convenience: Evidence from the Banking Industry","authors":"Hui Wang, Andrew T. Ching","doi":"10.2139/ssrn.1738084","DOIUrl":"https://doi.org/10.2139/ssrn.1738084","url":null,"abstract":"This paper develops a structural demand model for US retail banking services in which consumers have preference over the geographical convenience of their banks' networks. The model accounts for the fact that (i) consumers spend time in both home and workplace and may need to access their bank's services at any time of the day, and (ii) consumers do not consider services provided by different bank networks as perfect substitutes, therefore prefer to use branches of their own banks. I estimate the model using a detailed nationwide worker flow dataset that tracks consumers by residence and workplace. My results confirm that consumers value bank networks for their proximity to multiple locations. I conduct a counterfactual experiment to quantify the effect of this demand motive on bank deposits. After breaking the compatibility of services among branches within the same network, choosing a multi-branch bank no longer necessarily reduces consumers' expected travel distance, which takes away the potential gain from larger networks. For the average city and bank in the sample, each additional branch implies an increase of 0.1 percentage points in the extra market share generated from the network effect, which amounts to roughly one million dollars in deposits. These results on firm performance, along with the corresponding consumer welfare analysis, provide valuable insights to anti-trust regulators in evaluating within-market horizontal mergers in the presence of spatial network competition.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"2 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79856023","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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