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

Author: Dermine, Jean ; Röller, Lars-Hendrik ; Bonanni, CaroleINSEAD Area: FinanceIn: Applied Economics Letters, vol. 5, 1998 Language: EnglishDescription: p. 275-279.Type of document: INSEAD ArticleNote: Please ask the Library for this articleAbstract: 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 markets funds. For other funds, however, we find no such systematic evidence
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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 markets funds. For other funds, however, we find no such systematic evidence

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