Chapter 8 - Chapter 8 Banks and Money Network effects...

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Chapter 8: Banks and Money Network effects: people tend to associate larger banks with more stable ones Network services: banks perform wide variety of services involving money transfers and payments among individuals, firms, and the government Switching costs and lock-in: Consumers bear significant cost of moving financial activities Cash withdrawals: ATM’s generate network of users who can withdraw from machines 8.1 Switching Costs and Competition - main explanation for consumers refraining from switching among banks even when they are fully informed of large differences in bank service fees is switching costs - switching costs confer market power on banks - include time it takes to communicate information about banking change and expected loss stemming from mistakes occurring due to a miscommunication concerning the exact account routing number and resulting loss of income due to delays in getting deposits - might get less credit if move to a new bank and try to get a loan A model: - banks must substantially lower their fees in order to attract consumers from a competing
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Chapter 8 - Chapter 8 Banks and Money Network effects...

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