Why are banks’ asset–liability decisions interdependent, and why do we observe both large and small banks? We introduce convex costs in a model with both horizontal and vertical quality differentiation, finding that, as long as a single bank spends on quality attributes, strategic quality rivalry causes the portfolio decisions of all banks to be interconnected, generating portfolio interdependence regarding choices among assets and liabilities at each bank, including banks that forego vertical quality provision. In addition, diseconomies of scale allow banks to remain profitable at different scales of operations.

Dia, E., Vanhoose, D. (2022). Differentiated attributes and service-quality competition as sources of portfolio interdependence and diverging scales in banking. ECONOMICS LETTERS, 219(October 2022) [10.1016/j.econlet.2022.110823].

Differentiated attributes and service-quality competition as sources of portfolio interdependence and diverging scales in banking

Dia E.
;
2022

Abstract

Why are banks’ asset–liability decisions interdependent, and why do we observe both large and small banks? We introduce convex costs in a model with both horizontal and vertical quality differentiation, finding that, as long as a single bank spends on quality attributes, strategic quality rivalry causes the portfolio decisions of all banks to be interconnected, generating portfolio interdependence regarding choices among assets and liabilities at each bank, including banks that forego vertical quality provision. In addition, diseconomies of scale allow banks to remain profitable at different scales of operations.
Articolo in rivista - Articolo scientifico
Loan pricing; Market power; Portfolio interdependence; Vertical differentiation;
English
28-ago-2022
2022
219
October 2022
110823
reserved
Dia, E., Vanhoose, D. (2022). Differentiated attributes and service-quality competition as sources of portfolio interdependence and diverging scales in banking. ECONOMICS LETTERS, 219(October 2022) [10.1016/j.econlet.2022.110823].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/396373
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