UCL School of Management is delighted to welcome,Andrew Ching, The Johns Hopkins Carey Business School, to host a research seminar discussing ‘Consumer Valuation of Network Convenience: Evidence from the Banking Industry’

Abstract

This paper develops a structural multi-location consumer demand model to analyze spatially differentiated retail networks. A novel feature is that we allow consumers to care about outlets that are close to either home or workplace locations. This is in contrast to the previous literature, which assumes consumers only value their home locations. We apply our model to the U.S. retail banking industry. To estimate our model, we use a detailed worker flow dataset to obtain consumers’ home and work locations, and combine it with a dataset that details each branch’s deposit and location in 132 isolated US cities. Our results shows that consumers put almost equal weights on their home and workplace locations in accessing banking services. To demonstrate the value of a bank’s branch network, we conduct a counterfactual experiment by restricting consumers to access banking services from only one branch. Effectively, this restricts consumers to access banking services from either home or workplace location, but not both. We find that for banks with more than 10 branches per local market, on average they could lose 8.6 percent of their existing market share under this counterfactual scenario.