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Some evidence on customer 'lock-in' in the French mutual funds industry

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  • C. Bonanni
  • J. Dermine
  • L. -H. Roller

Abstract

We build on earlier work in the literature on economies of scale and scope in the financial services industry by using a unique French data set covering 162 financial institutions. In the institutional context of the French mutual funds industry, it has been argued that consumers incur significant costs in switching from one bank to another bank. Switching costs could create 'lock-in' that could be used by an institution to extract more rent over time. This paper attempts to differentiate empirically between dynamic pricing strategies (such as customer lock-in) and cost based explanations such as scale and scope economies in the context of the French mutual funds industry. Our results indicate support for the customer 'lock-in' hypothesis for the dominant segment of the French SICAV industry, namely the money market funds. For other funds, however, we find no such systematic evidence.

Suggested Citation

  • C. Bonanni & J. Dermine & L. -H. Roller, 1998. "Some evidence on customer 'lock-in' in the French mutual funds industry," Applied Economics Letters, Taylor & Francis Journals, vol. 5(5), pages 275-279.
    • Handle: RePEc:taf:apeclt:v:5:y:1998:i:5:p:275-279
    DOI: 10.1080/758524400
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    References listed on IDEAS

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    1. Dermine, Jean & Roller, Lars-Hendrik, 1992. "Economies of scale and scope in French mutual funds," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 83-93, March.
    2. Steven A. Sharpe, 1992. "Consumer switching costs, market structure and prices: the theory and its application in the bank deposit market," Finance and Economics Discussion Series 183, Board of Governors of the Federal Reserve System (U.S.).
    3. Goldberg, Lawrence G. & Hanweck, Gerald A. & Keenan, Michael & Young, Allan, 1991. "Economies of scale and scope in the securities industry," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 91-107, February.
    4. Ferris, Stephen P & Chance, Don M, 1987. "The Effect of 12b-1 Plans on Mutual Fund Expense Ratios: A Note," Journal of Finance, American Finance Association, vol. 42(4), pages 1077-1082, September.
    5. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-644, November.
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