SOME EVIDENCE ON CUSTOMER LOCK-IN IN THE FRENCH MUTUAL FUNDS INDUSTRY

We build on earlier work in the literature on economies of scale and s cope in the financial services industry by using a unique French data set covering 162 financial institutions. In the institutional context of the French mutual funds industry, it has been argued that consumers incur significant costs in switching from one bank to another bank. S witching costs could create 'lock-in' that could be used by an institu tion to extract more rent over lime. This paper attempts to differenti ate empirically between dynamic pricing strategies (such as customer l ock-in) and cost based explanations such as scale and scope economies in the context of the French mutual funds industry. Our results indica te support for the customer 'lock-in' hypothesis for the dominant segm ent of the French SICAV industry, namely the money market funds. For o ther funds, however, we find no such systematic evidence.