Market Concentration and Uniform Pricing: Evidence from Bank Mergers

63 Pages Posted: 4 Dec 2019

See all articles by Joao Granja

Joao Granja

University of Chicago - Booth School of Business

Nuno Paixao

Bank of Canada

Date Written: October 31, 2019

Abstract

We show that U.S. banks price deposits almost uniformly across their branches and that this pricing practice is crucial to explain the deposit rate dynamics following bank mergers. We find a strong and sharp post-merger convergence between the deposit rates of the acquired branches and the median deposit rate of the acquirer. This pattern is almost fully explained by adjustments in the deposit rates of the acquired branches, irrespective of whether their rates were above or below those practiced by the acquirer. Acquired branches lose deposits and local market share, especially when they decrease their rates due to uniform pricing. Local competitors respond to changes in deposit rates at the acquired branches by adjusting their own deposit rates in the same direction. We find that pre-merger differences in deposit rates between merged entities explain more of the post-merger evolution of deposit rates than the predicted changes in local market concentration induced by the merger. This result indicates that competition authorities would be well-advised to review the potential impact of pre-merger pricing differences in evaluating a merger within an industry with strong uniform pricing practices.

Keywords: Market Concentration, Uniform Pricing, Banking, Deposit Market, Mergers and Acquisitions, Mergers Regulation

JEL Classification: D4, G20, G21, G28, G34, L11

Suggested Citation

Granja, Joao and Paixao, Nuno, Market Concentration and Uniform Pricing: Evidence from Bank Mergers (October 31, 2019). Available at SSRN: https://ssrn.com/abstract=3488035 or http://dx.doi.org/10.2139/ssrn.3488035

Joao Granja

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Room 326
Chicago, IL 60637
United States

Nuno Paixao (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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