Marketing Seminar（2015-14）

Title:Technology and Market Structure: An Empirical Analysis of Entry and Exit in the Banking Industry

Speaker: Liu Hongju ,University of Connecticut

Time: 6.January. 13:30-15:00

Location:Room217, Guanghua Building 2

Abstract:

Most U.S. banks started to offer Internet banking in late 1990s. Since then the retail banking industry has been expected to substitute the costly branch network with the more efficient Internet channel. However, we find that the expansion of online banking did not reduce the total number of brick-and-mortar branches, and furthermore, large, national banks expanded their branch network at the cost of small, local banks. Using detailed data on branch location and performance, we estimate a dynamic entry/exit model to investigate the relationship between the technology advancement and the market structure evolution. Our findings suggest that the advent of online banking has provided significant competitive advantages to large banks over small banks. Specifically, large banks are in a better position to take advantage of the increasing residential broadband penetration rate by investing more in online banking services, and hence improve efficiency and reduce the costs in operating offline branches. Through counterfactual simulations, we show how different factors contribute to the market structure evolution. The reduction in operating costs for large banks is the most significant factor driving the recent change in the U.S. banking industry, followed by their increased entry costs and increased deposits due to greater online presence.

CV

Dr. Hongju Liu is Associate Professor of Marketing at the University of Connecticut. He received his Ph.D. and MBA from the University of Chicago Booth School of Business. Dr. Liu’s research focuses on the areas of dynamic structural models and technology markets. He has published in top marketing journals including Marketing Science, Journal of Marketing Research and Management Science.

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