Research On Competition Strategy Of China's Internet Banking Based On Network Externality

It indicated that network economy had become a very important part of the domain economy from the western developed country's economic tendency. In network economy scope, more and more markets get rapid development based on the unceasing progress of network economy. As the most perfect union result of traditional finance and network economy, internet banking initiated a banking industry's revolution.On the one hand, internet banking changed the management concept and business model which focused on increasing branches and labor forces into the high technology and high benefit development model. With higher service divergence ability, innovation ability and emerging market penetration ability, internet banking reduced the operation cost, expanded debt channel and promoted the bank's core competence. On the other hand, the feature of across time and space and convenience of internet banking allowed customers to enjoy comprehensive financial services just staying at home, that is great satisfied customers'requirements. With the low cost, personalized service, convenient transaction and rapid response of customers'demands, internet banking demonstrated the huge vitality and has rapidly become the focal point of international banking circles.Since 1996, Bank of China took the lead in the domestic launch of internet banking, Internet banking's business volume and user scale maintained continuous growth trend afterward more than ten years. In nationwide, the bank business volume which depended on electronic bank channel by internet banking primarily had already approached or surpassed 50% to the tradition bank transaction. Internet banking's business volume was getting bigger and bigger, and showing the fast substitution that instead of traditional bank counter service. At the same time, The People's Bank of China (PBOC) put its internet banking payment system, or "super internet banking system," which supported real-time interbank transfers and interbank balance inquiries into service to further raise internet payment settlement efficiency. Super internet banking system had broken network barrier among banking industry, simplified the fund cross line of settlement complex way, reduced the cross line of inquiry and capital allocation transaction cost, and realized China's internet banking to be general successfully。The strong development situation of internet banking and the appearance of super online banking system let us realize the truth:Internet banking had grown from the mere service to a separate market, and this market had been bound to grow with the rapid technology development or would eventually eliminate traditional banks. Moreover, as the union result of traditional finance and network economy, internet banking brightly displayed network externality which is a most key character of network economy. Therefore, it was necessary to stand in the economic viewpoint and unify the network externality conditions to do further study on China's internet banking. Thus we can reveal its underlying implication of the economic principles and economic law and provide the useful policy suggestion to internet banking market's development.This paper mainly applied Industrial Organization, Finance, Network Economic and Game Theory, took network externality as the prerequisite, took market structure and market behavior in industrial organization theory as the analysis frames and used expanded undercut-proof equilibrium model to study the market competition strategy in China's internet banking market. Finally it obtained the research conclusions through market price behavior of China's internet banking.This paper is divided into five parts.The first part is introduction. It had overviewed the research background, significance of research and the framework of this paper. At the same time, it summarized the innovation points.The second part is the studies summary part. It had mainly combed basic theories and related research results of this paper, including two parts which are network externality and competition strategy of internet banking market. It laid the rationale for the following empirical analysis.The third part is the empirical analysis part. The first section introduced China's internet banking market's situation as empirical analysis descriptions. The second section mainly used Metcalfe Law to make an empirical test on network externality of China's internet banking market. Simultaneously the section unified the present situation from the user, the bank and the electronic commerce impetus three aspects to summarize the reason. The third section used market share of transaction volume to estimate the market concentration degree CRn index of China's internet banking. According to Bain taxonomic approach, we obtained China's internet banking market mechanism which belonged to extremely oligopoly market mechanism and summarized the characteristic. The empirical test provided the supposition premise and foundation for following undercut-proof equilibrium model.The fourth part is undercut-proof equilibrium model of China's internet banking market. It mainly established the expansion undercut-proof equilibrium model based on network externality and the market mechanism analysis. We introduced two variables which were network externality coefficient and the conversion cost to conduct the research to competition strategy of China's internet banking market.The fifth part is conclusion and suggestion part. It mainly obtained the research conclusion according to the empirical analysis and model analysis. Simultaneously it unified the practical situation of China's internet banking market to make policy recommendations. Finally, we summarized insufficiency and further place of the improvement.The research has found the following points.1) The transaction volume and the user scale square of China's internet banking market had the remarkable correlation dependence. The Metcalfe Law had obvious effect in China's internet banking market.2) China's internet banking market concentration degree is high and the market share mainly concentrated in five big state-owned banks and China Merchants Bank. According to Bain's division, it belonged to a very high oligopoly type. At the same time, the market concentration degree showed certain extent's dispersion. It indicated that China's internet banking market monopoly had certain competitiveness. But disperses the scope was only restricted between several big large banks. The result is close to China's national condition, historical reason as well as market competition strategy and so on.3) When internet banking was incompatible, network externality reversed influenced product price and profit of internet banking. But when super online banking system appears, network externality did not have the influence to its equilibrium price and the equilibrium profit anymore because the network size which the customer faced would not change.4) The conversion cost of internet banking was higher, the product price was higher and the profit which the manufacturer obtained was higher. This was suitable to two stage's analyses. It indicated that the conversion cost had positive influence on equilibrium price and equilibrium profit of internet banking product.5) When internet banking was incompatible, the user scale market share had positive influence on price. After super online banking system appears, the user scale market share had negative influence on price. It indicated that the compatibility changed the influence which user scale market share get to internet bank product price.