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Switching costs in the market for personal current accounts: some evidence for the United Kingdom

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  • Céline Gondat-Larralde
  • Erlend Nier

Abstract

This paper provides an analysis of the competitive process in the market for personal current accounts in the United Kingdom. Using survey data, we first describe some stylised developments in this market over our sample period (1996-2001). We find a gradual change in the distribution of market shares over time. This contrasts with a marked dispersion in price, which appears to persist through time. Analysing the evolution of market shares, we address two key questions: (i) are bank market shares responding to price differentials?; (ii) if not, which type of imperfect competition best fits the data? Our conclusions point to the existence of customer switching costs as a key determinant of the nature of competition in the market for personal current accounts. The results of this study are therefore broadly supportive of a number of recent initiatives to facilitate switching bank accounts in the United Kingdom.

Suggested Citation

  • Céline Gondat-Larralde & Erlend Nier, 2006. "Switching costs in the market for personal current accounts: some evidence for the United Kingdom," Bank of England working papers 292, Bank of England.
    • Handle: RePEc:boe:boeewp:292
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    Cited by:

    1. John Ashton & Andros Gregoriou, 2014. "The role of implicit costs and product quality in determining the customer costs of using personal current accounts," Working Papers 14001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    2. John K. Ashton & Andros Gregoriou, 2017. "Does an Overdraft Facility Influence the Customer Costs of Using a Personal Current Account?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 24(1), pages 1-26, January.
    3. C鬩ne Gondat-Larralde & Frank Strobel, 2013. "Uncertainty and switching in the mortgage market," Applied Economics, Taylor & Francis Journals, vol. 45(21), pages 3068-3073, July.
    4. Viral V. Acharya & Hyun Song Shin & Tanju Yorulmazer, 2011. "Crisis Resolution and Bank Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2166-2205.
    5. Anderson, Robert D.J. & Ashton, John K. & Hudson, Robert S., 2014. "The influence of product age on pricing decisions: An examination of bank deposit interest rate setting," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 216-230.
    6. Viral V. Acharya & Tanju Yorulmazer, 2008. "Information Contagion and Bank Herding," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 215-231, February.
    7. Tanju Yorulmazer, 2014. "Literature review on the stability of funding models," Economic Policy Review, Federal Reserve Bank of New York, issue Feb, pages 3-16.
    8. Zhao, Tianshu & Matthews, Kent & Murinde, Victor, 2013. "Cross-selling, switching costs and imperfect competition in British banks," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5452-5462.

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