Intensity of competition and market structure in the Italian banking industry
The aim of this paper is to test the predictions of Sutton's model of independent submarkets for the Italian retail banking industry. This industry, in fact, can be viewed as made of a large number of local markets corresponding to different geographical locations. In order to do that, I first develop a model of endogenous mergers that shows how the number of firms is determined by the initial number of firms, by the intensity of competition, and by the degree of product differentiation, and how this in turn affects the one-firm concentration index. Then, in the second part, the number of banks in each submarket is estimated using a truncated model and a Poisson model. The size of the submarkets turned out to be at most provincial. Finally, the one-firm concentration ratio of each province is regressed on the number of banks, also in interaction with market size variables. As argued by Sutton for industries with exogenous sunk costs, a stronger and negative relationship is found as the market becomes larger.
|Date of creation:||01 Jun 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
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.:
- Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
- Rodrigues, Vasco, 2001.
"Endogenous mergers and market structure,"
International Journal of Industrial Organization,
Elsevier, vol. 19(8), pages 1245-1261, September.
- Vasco Rodrigues, 1998. "ENDOGENOUS MERGERS and MARKET STRUCTURE," Working Papers de Economia (Economics Working Papers) 05, Católica Porto Business School, Universidade Católica Portuguesa.
- Vittoria Cerasi & Barbara Chizzolini & Marc Ivaldi, 2002. "Branching and competition in the European banking industry," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2213-2225.
- Buzzacchi, Luigi & Valletti, Tommaso, 2002.
"Firm Size Distribution: Testing the 'Independent Submarkets Model' in the Italian Motor Insurance Industry,"
CEPR Discussion Papers
3444, C.E.P.R. Discussion Papers.
- Buzzacchi, Luigi & Valletti, Tommaso M., 2006. "Firm size distribution: Testing the "independent submarkets model" in the Italian motor insurance industry," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 809-834, July.
- Luigi Buzzacchi & Tommaso Valletti, 1999. "Firm size distribution: testing the "independent submarkets model" in the Italian motor insurance industry," LSE Research Online Documents on Economics 6749, London School of Economics and Political Science, LSE Library.
- Luigi Buzzacchi & Tommaso Valetti, 1999. "Firm Size Distribution: Testing the "Independent Submarkets Model" in the Italian Motor Insurance Industry," STICERD - Economics of Industry Papers 24, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Mitchell A. Petersen & Raghuram G. Rajan, 1994.
"The Effect of Credit Market Competition on Lending Relationships,"
NBER Working Papers
4921, National Bureau of Economic Research, Inc.
- Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
- Marcello Bofondi & Giorgio Gobbi, 2004. "Bad Loans and Entry into Local Credit Markets," Temi di discussione (Economic working papers) 509, Bank of Italy, Economic Research and International Relations Area.
- de Juan, Rebeca, 2003. "The independent submarkets model: an application to the Spanish retail banking market," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1461-1487, December.
- Leslie E. Papke & Jeffrey M. Wooldridge, 1993.
"Econometric Methods for Fractional Response Variables with an Application to 401(k) Plan Participation Rates,"
NBER Technical Working Papers
0147, National Bureau of Economic Research, Inc.
- Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
- V. Cerasi & B. CHIZZOLINI & M. IVALDI, 1998. "Branching and Competitiveness across Regions in the Italian Banking Industry," Departmental Working Papers 1998-03, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- Vasconcelos, Helder, 2006. "Endogenous mergers in endogenous sunk cost industries," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 227-250, March.
- Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
- Felici Roberto & Pagnini Marcello, 2005. "Distance, bank heterogeneity and entry in local banking markets," Temi di discussione (Economic working papers) 557, Bank of Italy, Economic Research and International Relations Area.
When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2007041. 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: (Alain GILLIS)
If references are entirely missing, you can add them using this form.