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Strategic Behavior between a Bank and a Microfinance Institution: The Role of Psychological Distance and Education Level

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  • François Fall

    (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)

  • Thanh Tam Nguyen-Huu

    (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université)

Abstract

In Hotelling's fundamental model (1929), the geographical distance and high transportation costs grant firms present in a market a certain power over local buyers in their neighborhoods. Starting from his model, this study shows that in the competition between a bank and a microfinance institution (MFI), geographical distance and transportation costs alone are no longer sufficient for attributing market power to the firms present. In fact, the introduction of psychological distance and education level in the model alter the Hotelling's results. Psychological proximity (trust) and the educational level of the client play determinant roles in dividing the credit market between a bank and an MFI.

Suggested Citation

  • François Fall & Thanh Tam Nguyen-Huu, 2015. "Strategic Behavior between a Bank and a Microfinance Institution: The Role of Psychological Distance and Education Level," Working Papers hal-01566392, HAL.
    • Handle: RePEc:hal:wpaper:hal-01566392
    Note: View the original document on HAL open archive server: https://univ-tlse2.hal.science/hal-01566392
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    References listed on IDEAS

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