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The multimarket contacts theory; an application to Italian banks

Listed author(s):
  • Riccardo De Bonis


    (Banca d�Italia, Research Department)

  • Annalisa Ferrando

    (Banca d�Italia and European Commission)

The multimarket contact hypothesis holds that more contacts between firms competing in the same markets may induce more collusion. This paper tests the hypothesis for the Italian banking market, analysing the behaviour of the largest Italian banks from 1990 to 1996. Market rivalry is gauged by changes in loan market shares and interest rates in each Italian province. Different measures of multimarket contacts are built. We estimate the effects of increasing multimarket contacts, concentration indicators, banks� costs and loan growth on variations in market shares and interest rates. No support is found for the multimarket contact hypothesis. Geographical overlap in banking is positively correlated with changes in market shares, confirming the thesis of an overall increase in competition within the Italian banking system. Greater multimarket links also seem to correspond to lower lending rates.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 387.

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Date of creation: Dec 2000
Handle: RePEc:bdi:wptemi:td_387_00
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  1. van Witteloostuijn, Arjen & van Wegberg, Marc, 1992. "Multimarket competition : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 18(2), pages 273-282, July.
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