The Only Fund in Town? Geographic Segmentation in the US Mutual Fund Industry

We find that mutual funds located in regions with more competing funds charge lower management fees, but higher fees related to sales and distribution (12b-1 fees), sales loads, and other nonmanagement fee expenses. There is some evidence that funds in more competitive regions have higher total expense ratios than similar funds in less competitive regions. Our results indicate that while increased competition drives down fund profits, it creates a negative externality by way of increased sales expenses. Overall, our results suggest the mutual fund industry is characterized by monopolistic competition determined at the local level.