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The Impact of Mergers on the Degree of Competition in the Banking Industry

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  • Cerasi, Vittoria
  • Chizzolini, Barbara
  • Ivaldi, Marc

Abstract

This paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7618.

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Date of creation: Jan 2010
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Handle: RePEc:cpr:ceprdp:7618

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Related research

Keywords: Banking industry; Competition and market structure; Merger policy;

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References

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  1. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2006. "The Cost of Banking Regulation," CEPR Discussion Papers 5864, C.E.P.R. Discussion Papers.
  2. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
  3. Martin Cihák & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
  4. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, 02.
  5. Bresnahan, Timothy F. & Reiss, Peter C., 1991. "Empirical models of discrete games," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 57-81.
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Cited by:
  1. Vittoria Cerasi & Alessandro Fedele & Raffaele Miniaci, 2013. "Product market competition and collateralized debt," Working Papers 238, University of Milano-Bicocca, Department of Economics, revised Mar 2013.

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