Competition and Market Concentration in the Municipal Bond Market

78 Pages Posted: 19 Dec 2019

See all articles by Dario Cestau

Dario Cestau

IE Business School, IE University

Date Written: July 11, 2019


Lack of competition among the underwriters of municipal bonds increases the borrowing costs of local municipalities. I find that the proportion of municipal bonds sold in competitive sales in the state has an economically significant effect on several measures of competitiveness. Competitive sales increase the number of active underwriters in the state and substantially decrease the concentration in the market for underwriting services for municipal bonds. I also find that state restrictions on the negotiated sale of municipal bonds can materially decrease market concentration. Market concentration has increased considerably over time, but only negotiated deals have contributed to greater concentration.

Keywords: Market power, concentration, Herfindahl Index, book building, auctions, municipal bonds

JEL Classification: H3, H7, G1

Suggested Citation

Cestau, Dario, Competition and Market Concentration in the Municipal Bond Market (July 11, 2019). Available at SSRN: or

Dario Cestau (Contact Author)

IE Business School, IE University ( email )

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006

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