Impact of Mergers on the Degree of Competition: Application to the Banking Industry
Bicocca University - Department of Economics, Management & Statistics (DEMS)
Bocconi University - Department of Economics
Toulouse School of Economics; Centre for Economic Policy Research (CEPR)
August 31, 2010
FEEM Working Paper No. 95.2010
This paper analyses the relation between competition and concentration in a monopolistic competition model where banks compete in branching and interest rates and market structure is endogenous. The model is applied on individual bank data in Italy and France using a maximum likelihood approach to derive a measure of the degree of competition in each local market. We propose an empirical test to evaluate ex-ante the impact of horizontal mergers on this measure. Depending on the pre-merger market structure and geographic distribution of branches, we find either cases where the merger is pro-competitive or anti-competitive. It proves its relevance as a tool for competition policy analysis. In addition, thanks to its theoretical foundation, it encompasses more information than traditional measures of competition while it is parsimonious in terms of data requirements.
Number of Pages in PDF File: 34
Keywords: Banking industry, Competition and market structure, Merger policy
JEL Classification: G21, L13, L59working papers series
Date posted: September 1, 2010 ; Last revised: June 8, 2013
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