Demand Spillovers and Market Outcomes in the Mutual Fund Industry

MPRA Paper from University Library of Munich, Germany

Abstract: When consumers concentrate their purchases at a single firm, a firm that offers more products than its rivals can gain market share for all its other products, as well. These spillovers induce firms to compete by oﬀering a greater variety of products rather than lower prices, and a natural form of industry concentration with few large firms offering many products can arise if spillovers are strong enough. This paper presents a simple model that illustrates this mechanism explicitly. The empirical analysis documents strong demand spillovers in the retail segment of the U.S. mutual fund industry, in which fees are non-trivial, families offer a large number of funds, and the market is quite concentrated. Instead, spillovers are weaker, fees are lower, families oﬀer fewer funds, and the market structure is more fragmented in the institutional segment. The current design of employer-sponsored defined-contribution retirement plans likely accounts for these differential demand patterns between the retail and the institutional segments.

Keywords: mutual funds; retirement plans; demand spillovers; sunk costs. (search for similar items in EconPapers)
JEL-codes: D14 D43 G11 G23 L13 L22 (search for similar items in EconPapers)
Date: 2011-03-01
New Economics Papers: this item is included in nep-com and nep-mkt
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Demand spillovers and market outcomes in the mutual fund industry (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:30074

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