Supermarket distribution and brand recognition of open-end mutual funds

Abstract

Although supermarkets for groceries have existed for nearly a century, financial supermarkets are a much more recent innovation. We find that investors rely on mutual fund supermarkets to buy highly differentiable funds from small, specialized fund families. Investors' use of supermarkets is consistent with efforts to reduce search costs while obtaining the benefits of product focus at the fund origination level. The results thus demonstrate the growing importance of distribution in the context of intangible goods. Consistent with arguments by Black, Ciccotello, and Skipper (2002), the findings suggest that brand in financial services is increasingly driven by closeness to the customer.