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Market Size, Service Quality, and Competition in Banking

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  • ASTRID A. DICK
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    Abstract

    Local banking markets depict enormous variation in population size. Yet this paper finds that the nature of bank competition across markets is strikingly similar. First, markets remain similarly concentrated regardless of size. Second, the number of dominant banks is roughly constant across markets of different size; it is the number of fringe banks that increases with market size. Third, service quality increases in larger markets and is higher for dominant banks. The findings suggest that banks use fixed-cost quality investments to capture the additional demand when market size grows, thereby raising barriers to entry. Copyright 2007 The Ohio State University.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.0022-2879.2007.00003.x
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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 39 (2007)
    Issue (Month): 1 (02)
    Pages: 49-81

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    Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:1:p:49-81

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Giannetti, C., 2008. "Intensity of Competition and Market Structure in the Italian Banking Industry," Discussion Paper 2008-43, Tilburg University, Center for Economic Research.
    2. Berger, Allen N. & Kick, Thomas & Schaeck, Klaus, 2012. "Executive board composition and bank risk taking," Discussion Papers 03/2012, Deutsche Bundesbank, Research Centre.
    3. Xavier Vives, 2010. "Competition and Stability in Banking," CESifo Working Paper Series 3050, CESifo Group Munich.
    4. Coccorese, Paolo, 2012. "Banks as ‘fat cats’: Branching and price decisions in a two-stage model of competition," Journal of Economics and Business, Elsevier, vol. 64(5), pages 338-363.
    5. Brekke, Kurt Richard & Siciliani, Luigi & Straume, Odd Rune, 2009. "Price and quality in spatial competition," CEPR Discussion Papers 7422, C.E.P.R. Discussion Papers.
    6. Burghardt, Dirk, 2013. "The Impact of Trade Policy on Industry Concentration in Switzerland," Economics Working Paper Series 1317, University of St. Gallen, School of Economics and Political Science.
    7. Benjamin M. Tabak & Dimas M. Fazio & Daniel O. Cajueiro, 2011. "The Relationship Between Banking Market Competition and Risk-taking: Do Size and Capitalization Matter?," Working Papers Series 261, Central Bank of Brazil, Research Department.
    8. Dick, Astrid A., 2008. "Demand estimation and consumer welfare in the banking industry," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1661-1676, August.
    9. Laussel, Didier & Lahmandi-Ayed, Rim, 2010. "Natural oligopolies with exogenous sunk costs: A non-Suttonian result," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 844-854, September.

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