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Entry decisions after deregulation: the role of incumbents' market power

Author

Listed:
  • Lorenzo Ciari

    () (European University Institute - Firenze (I))

  • Riccardo De Bonis

    () (Banca d'Italia, Economics and International Relations Area)

Abstract

This paper investigates the role of incumbents' market power in shaping the entry decisions of Italian banks after branching liberalization in 1990. Using a unique dataset on 260 banks, we find that entry over the 1990-1995 period was targeted towards markets that were more competitive to begin with, i.e. where banking spreads were smaller. The results confirm the entry deterrent role of market power in the short-run and show a long run effect of regulation that survives after the removal of administrative barriers. The capacity of market power to discourage entry is confirmed in instrumental variables specifications, where we use the characteristics of the local banking markets in 1936, a proxy for tightness of banking regulation, to identify an exogenous source of variation in the spreads.

Suggested Citation

  • Lorenzo Ciari & Riccardo De Bonis, 2011. "Entry decisions after deregulation: the role of incumbents' market power," Mo.Fi.R. Working Papers 50, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  • Handle: RePEc:anc:wmofir:50
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    File URL: http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir050.pdf
    File Function: First version, 2011
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    References listed on IDEAS

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    More about this item

    Keywords

    banking; barriers to entry; deregulation; market power;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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