Ownership Matters: the Geographical Dynamics of BAAC and Commercial Banks in Thailand
We present two dynamic spatial competition models for the provision of financial services in Thailand. We characterize the equilibrium of the models for the cases where a profit-maximizing commercial bank plays against a government bank that targets different combinations of profit maximization and total access to the financial system. The equilibrium properties of the models are studied through key examples and a series of simulation exercises. When the government bank maximizes the total access to financial system, we show that (i) the government bank goes to more isolated and poorer markets, anticipating that the commercial bank will serve the most profitable markets first; (ii) the behavior of the government bank is substantially affected by the presence of the commercial bank. We also provide simulation schemes that allow us to identify which parameter configuration better fits the data. Our results suggest that the expansion of the financial providers in Thailand depicts a relevant spatial dimension, with the government bank (BAAC) behaving differently from commercial bank, with a concern on the overall access to financial services.
This paper was presented at the Financial Systems, Industrial Organization, and Economic Development Workshop in April of 2012. The corresponding presentation is also available.