Working Paper

Demand estimation and consumer welfare in the banking industry

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: Banks and banking, American; Consumer behavior;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2002

Number: 2002-58