Credit Unions: Fringe Suppliers or Cournot Competitors?

Credit Unions: Fringe Suppliers or Cournot Competitors? Recent work has demonstrated the competitive relationship between credit unions and banks in consumer financial services. One issue underlying the nature of competition between the two, however, concerns the most appropriate way to model their interactions.Two possible approaches are the dominant-firm price-leadership model and the generalized Cournot model. In the former model, credit unions act as fringe suppliers who are price-takers in a homogeneous product market. In the latter, they possess (limited) market power. Oneway to distinguish the two is by examining the impact of credit union market shares on their pricing, as the two models imply differing effects. Our results are more consistent with the ``credit unions as fringe suppliers'' view. Using a pooled cross-section time seriesof 77 small local consumer lending markets throughout the U.S., each with 10 observations over 5 years, the focus is on a loan product ex ante thought to be sold in local markets, unsecured (non-credit card) loans. For this product, increasing credit union market sharesreduces credit union loan rates, consistent with a fringe supplier hypothesis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Credit Unions: Fringe Suppliers or Cournot Competitors?

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1013858830811
Publisher site
See Article on Publisher Site

Abstract

Recent work has demonstrated the competitive relationship between credit unions and banks in consumer financial services. One issue underlying the nature of competition between the two, however, concerns the most appropriate way to model their interactions.Two possible approaches are the dominant-firm price-leadership model and the generalized Cournot model. In the former model, credit unions act as fringe suppliers who are price-takers in a homogeneous product market. In the latter, they possess (limited) market power. Oneway to distinguish the two is by examining the impact of credit union market shares on their pricing, as the two models imply differing effects. Our results are more consistent with the ``credit unions as fringe suppliers'' view. Using a pooled cross-section time seriesof 77 small local consumer lending markets throughout the U.S., each with 10 observations over 5 years, the focus is on a loan product ex ante thought to be sold in local markets, unsecured (non-credit card) loans. For this product, increasing credit union market sharesreduces credit union loan rates, consistent with a fringe supplier hypothesis.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 13, 2004

References

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