Bank Consolidation and Uniform Pricing

Abstract

We evaluate how bank mergers affect consumer welfare when banks set deposit rates uniformly across their branch networks. First, we document that merger-induced changes to local market power are only weakly correlated with pricing decisions. Second, we develop a structural model of the banking sector to simulate equilibrium post-merger deposit rates with and without uniform pricing. The simulated deposit rates from the model with uniform pricing best match the observed changes in deposit rates following bank mergers. We use the model to evaluate antitrust decisions
that force acquirers to divest branches in order to contain local market concentration levels. Our counterfactual exercises suggest that forced divestitures sometimes improve consumer welfare but can also impose substantial consumer welfare losses when antitrust regulators do not consider that uniform pricing practices might lead some acquirers to offer better deposit rates at acquired branches after a merger.

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

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