The Economics of Regional Demarcation in Banking
University of Augsburg - Faculty of Business and Economics
University of Augsburg - Faculty of Business Administration and Economics
April 1, 2011
Schmalenbach Business Review, Vol. 63, pp. 120-144, April 2011
The European Commission criticized cooperation among savings and cooperative banks for potentially anti-competitive effects. Using an industrial economics model of banks taking deposits and giving loans, we look at regional demarcation as one of such cooperative practices. We study two adjacent markets comprising one savings or cooperative bank that focuses on one market and one private commercial bank serving both. We acknowledge that savings and cooperative banks have atypical objective functions. We find that abolishing regional demarcation does increase total loan volume. Due to their partially nonprofit objectives, savings or cooperative banks improve market performance, and they do better without the regional demarcation that shields the private commercial bank from aggressive competition.
Number of Pages in PDF File: 25
Keywords: banking, competition, cooperation, non-profit firms
JEL Classification: G21, L13, L33, L41, L44Accepted Paper Series
Date posted: July 5, 2011
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