Bank mergers as scale-free coagulation
The asset size distribution of US banks is viewed as the result of a scale-free coagulation process. When two banks merge, the assets of the combined institution equals the sum of the assets of the constituent banks. Analysis of the Smoluchowski coagulation equation suggests the emergence of a steady state, power-law distribution with an exponent that only depends on the degree of homogeneity of the coagulation rate. Bank merger data satisfies such power-law scaling. We develop an underlying theoretical framework for bank mergers quite different from prevailing ideas based on game theory on the one hand, and recent econophysical models on the other. As a corollary we show that in order to avoid the emergence of a mega-bank, the rate of return should decrease with the bank size. Finally, we suggest that stochastic coagulation may provide a unifying description of fast integration processes characteristic of globalization.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 336 (2004)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Farrell, Joseph & Shapiro, Carl, 1988.
"Horizontal Mergers: An Equilibrium Analysis,"
Department of Economics, Working Paper Series
qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Blank, Aharon & Solomon, Sorin, 2000. "Power laws in cities population, financial markets and internet sites (scaling in systems with a variable number of components)," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(1), pages 279-288.
- Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
- Okuyama, K & Takayasu, M & Takayasu, H, 1999. "Zipf's law in income distribution of companies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 269(1), pages 125-131.
- Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 739-767.
- Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, vol. 89(2), pages 129-132, May.
- Allen N. Berger, 2000. "The integration of the financial services industry: where are the efficiencies?," Finance and Economics Discussion Series 2000-36, Board of Governors of the Federal Reserve System (U.S.).
- Amaral, L.A.N. & Gopikrishnan, P. & Plerou, V. & Stanley, H.E., 2001. "A model for the growth dynamics of economic organizations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 127-136.
- Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
- Gautam Gowrisankaran, 1999. "A Dynamic Model of Endogenous Horizonal Mergers," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 56-83, Spring.
When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:336:y:2004:i:3:p:571-584. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.