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Impact of Mergers on the Degree of Competition: Application to the Banking Industry

34 Pages Posted: 1 Sep 2010 Last revised: 8 Jun 2013

Vittoria Cerasi

Bicocca University - Department of Economics, Management & Statistics (DEMS)

Barbara Chizzolini

Bocconi University - Department of Economics

Marc Ivaldi

Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: August 31, 2010

Abstract

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.

Keywords: Banking industry, Competition and market structure, Merger policy

JEL Classification: G21, L13, L59

Suggested Citation

Cerasi, Vittoria and Chizzolini, Barbara and Ivaldi, Marc, Impact of Mergers on the Degree of Competition: Application to the Banking Industry (August 31, 2010). FEEM Working Paper No. 95.2010. Available at SSRN: https://ssrn.com/abstract=1669169 or http://dx.doi.org/10.2139/ssrn.1669169

Vittoria Cerasi (Contact Author)

Bicocca University - Department of Economics, Management & Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy
+39-02-64485821 (Phone)
+39-02-64485878 (Fax)

Barbara Chizzolini

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Marc Ivaldi

Toulouse School of Economics ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 5 61 12 8592 (Phone)
+33 5 61 12 8637 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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