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Bank mergers in spatially differentiated markets

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  • Novo-Peteiro, Jos?A.
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    Abstract

    This paper studies the incentives of banks to merge when competing in differentiated markets. Localized competition effects and spatial competition variables can play a key role in defining the patterns of consolidation in this sector. We consider a model where banks compete in distinct spaces of depositor's characteristics. Regional merger is the outcome of the merger game if the spatial scope of demand is low and/or accessibility of services is not costly outside the home region. Otherwise, cross-regional merger is the outcome of the game. The results are consistent with the recent evolution of banking systems in many developed countries.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 61 (2009)
    Issue (Month): 1 ()
    Pages: 90-96

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    Handle: RePEc:eee:jebusi:v:61:y:2009:i:1:p:90-96

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    Web page: http://www.elsevier.com/locate/jeconbus

    Related research

    Keywords: Bank mergers Banking competition Market definition;

    References

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    1. Chiappori, P.A. & Perez-Castrillo, D. & Verdier, T., 1992. "Spatial Competition in the Banking System: Localization, Cross Subsidies and the Regulation of Deposit Rates," DELTA Working Papers 92-15, DELTA (Ecole normale supérieure).
    2. Hans Degryse & Steven Ongena, 2004. "The Impact of Technology and Regulation on the Geographical Scope of Banking," Center for Economic Studies - Discussion papers ces0408, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
    3. Allen N. Berger & David B. Humphrey, 1992. "Megamergers in banking and the use of cost efficiency as an antitrust defense," Finance and Economics Discussion Series 203, Board of Governors of the Federal Reserve System (U.S.).
    4. Allen N. Berger & Robert DeYoung & Gregory F. Udell, 2000. "Efficiency barriers to the consolidation of the European financial services industry," Finance and Economics Discussion Series 2000-37, Board of Governors of the Federal Reserve System (U.S.).
    5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    6. Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
    7. Allen N. Berger & Rebecca S. Demsetz & Philip E. Strahan, 1998. "The consolidation of the financial services industry: causes, consequences, and implications for the future," Finance and Economics Discussion Series 1998-46, Board of Governors of the Federal Reserve System (U.S.).
    8. Degryse, Hans, 1996. "On the Interaction between Vertical and Horizontal Product Differentiation: An Application to Banking," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 169-86, June.
    9. Brito, Duarte, 2003. "Preemptive mergers under spatial competition," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1601-1622, December.
    10. Inês Cabral & Frank Dierick & Jukka Vesala, 2002. "Banking integration in the euro area," Occasional Paper Series 06, European Central Bank.
    11. Buch, Claudia M. & DeLong, Gayle, 2004. "Cross-border bank mergers: What lures the rare animal?," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2077-2102, September.
    12. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
    13. Pita Barros, Pedro, 1999. "Multimarket competition in banking, with an example from the Portuguese market," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 335-352, April.
    14. Aliber, Robert Z, 1984. "International Banking: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 661-78, November.
    15. Nelson, Richard W., 1985. "Branching, scale economies, and banking costs," Journal of Banking & Finance, Elsevier, vol. 9(2), pages 177-191, June.
    16. Philipp Hartmann & Angela Maddaloni & Simone Manganelli, 2003. "The Euro-area Financial System: Structure, Integration, and Policy Initiatives," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 180-213.
    17. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
    18. William C. Hunter & Larry D. Wall, 1989. "Bank merger motivations: a review of the evidence and an examination of key target bank characteristics," Economic Review, Federal Reserve Bank of Atlanta, issue Sep, pages 2-19.
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    Cited by:
    1. Andreea Cosnita-Langlais, 2008. "Horizontal market concentration: Theoretical insights from the spatial models," EconomiX Working Papers 2008-42, University of Paris West - Nanterre la Défense, EconomiX.

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