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

  • Vittoria Cerasi

    (Bicocca University)

  • Barbara Chizzolini

    (Bocconi University)

  • Marc Ivaldi

    (Toulouse School of Economics and EHESS, Toulouse University)

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 Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.95.

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Date of creation: Jul 2010
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Handle: RePEc:fem:femwpa:2010.95
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  1. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2007. "The Cost of Banking Regulation," Economics Working Papers ECO2007/43, European University Institute.
  2. Catherine SCHAUMANS & Frank VERBOVEN, 2011. "Entry and competition in differentiated products markets," Center for Economic Studies - Discussion papers ces11.23, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  3. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, 02.
  4. Jan Boone & Henry van der Wiel & J. van Ours, 2007. "How (not) to measure competition," CPB Discussion Paper 91, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Barbara Chizzolini, 2011. "A multiperiod model of competition in retail banking," Rivista Bancaria - Minerva Bancaria, Istituto di Cultura Bancaria Francesco Parrillo, issue 3, June.
  6. 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.
  7. 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.
  8. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
  9. 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.
  10. 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.
  11. Bresnahan, Timothy F. & Reiss, Peter C., 1991. "Empirical models of discrete games," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 57-81.
  12. Martin Cihák & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
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