Evidence of Product Differentiation in the Microfinance Industry
Abstract
Microfinance institutions (MFIs) have experienced exponential growth and have spread throughout the world in the last 15 years. Their high repayment rates of up to 96% have drawn immense interest from both for-profit and non-profit institutions, with the number of for-profit MFIs increasing by over 800% within the last decade. Due to the rapid expansion of for-profit MFIs, there has been much debate over potential crowding-out effects of non-profit MFIs. Yet little research has focused on the current market structure of institutions, and how the interaction between for-profit and non-profit MFIs has shaped the market. Our research focuses on determining the impact of the growth of for-profit MFIs on consumer and producer welfare. Using a Bertrand differentiated product framework, we model both the price setting and demand functions of for-profit and non-profit MFIs. Solving for the Nash equilibrium conditions we proceed to structurally estimate the parameters of the underlying demand equation, subsequently deriving welfare implications. We find from both the theoretical and empirical models that for-profit MFIs provide greater welfare for consumers than non-profit MFIs.
Document Details
- Document Type
- Technical Report
- Publication Date
- May 09, 2011
- Accession Number
- ADA554681
Entities
People
- Daniel W. Chan
Organizations
- United States Naval Academy