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

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

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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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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  1. Boone, J. & van Ours, J.C. & van der Wiel, H.P., 2007. "How (Not) to Measure Competition," Discussion Paper 2007-014, Tilburg University, Tilburg Law and Economic Center.
  2. Hans Degryse & Steven Ongena, 2002. "Distance, Lending Relationships, and Competition," CSEF Working Papers 80, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  3. Barbara Chizzolini, 2011. "A multiperiod model of competition in retail banking," Rivista Bancaria - Minerva Bancaria, Istituto di Cultura Bancaria Francesco Parrillo, issue 3, June.
  4. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The cost of banking regulation," Proceedings 937, Federal Reserve Bank of Chicago.
  5. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, 02.
  6. Martin Cihák & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
  7. Fabio Panetta & Dario Focarelli, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Italian Market for Bank Deposits," CEIS Research Paper 10, Tor Vergata University, CEIS.
  8. Schaumans, Catherine & Verboven, Frank, 2011. "Entry and Competition in Differentiated Products Markets," CEPR Discussion Papers 8353, C.E.P.R. Discussion Papers.
  9. Bresnahan, Timothy F. & Reiss, Peter C., 1991. "Empirical models of discrete games," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 57-81.
  10. 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.
  11. Dario Focarelli & Fabio Panetta, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits," American Economic Review, American Economic Association, vol. 93(4), pages 1152-1172, September.
  12. Andrew M. Cohen & Michael J. Mazzeo, 2007. "Market Structure and Competition among Retail Depository Institutions," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 60-74, February.
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