nep-mfd New Economics Papers
on Microfinance
Issue of 2015‒12‒08
one paper chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Strategic behavior between a bank and a microfinance institution: The role of psychological distance and education level By Fall, François; Nguyen-Huu, Thanh Tam

  1. By: Fall, François; Nguyen-Huu, Thanh Tam
    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.
    Keywords: spatial competition,bank,microfinance,market power
    JEL: G21 O17 C72 D43
    Date: 2015

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