Discussion Paper

No. 2015-66 | December 02, 2015
Strategic Behavior between a Bank and a Microfinance Institution: The Role of Psychological Distance and Education Level

Abstract

In Hotelling’s fundamental model (1929), the geographical distance and high transportation costs grant firms present in a market a certain power over local buyers in their neighborhoods. Starting from his model, this study shows that in the competition between a bank and a microfinance institution (MFI), geographical distance and transportation costs alone are no longer sufficient for attributing market power to the firms present. In fact, the introduction of psychological distance and education level in the model alter the Hotelling’s results. Psychological proximity (trust) and the educational level of the client play determinant roles in dividing the credit market between a bank and an MFI.

JEL Classification:

G21, O17, C72, D43

Assessment

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Links

Cite As

François Fall and Thanh Tam Nguyen-Huu (2015). Strategic Behavior between a Bank and a Microfinance Institution: The Role of Psychological Distance and Education Level. Economics Discussion Papers, No 2015-66, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2015-66


Comments and Questions


Anonymous - Referee Report 1
January 05, 2016 - 14:31

See attched file


François Fall and Thanh Tam Nguyen-Huu - Reply to Referee Report 1
January 14, 2016 - 08:16

see attached file


Anonymous - Referee Report 2
January 13, 2016 - 10:05

see attached file


François Fall and Thanh Tam Nguyen-Huu - Reply to Referee Report 2
February 08, 2016 - 09:08

see attached file