A Test of the Impact of Mergers on Bank Competition

27 Pages Posted: 14 May 2020

See all articles by Vittoria Cerasi

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)

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Date Written: July 2019

Abstract

We propose a new test to evaluate the impact of horizontal mergers on competition in the banking industry. The test is designed to be applied ex ante to potential mergers while being parsimonious in terms of data, as it only uses information on branches in local markets. The test is a counterfactual exercise based on a two‐stage model where banks compete in branching and interest rates and requires comparing the estimated degree of competition in the status quo, where branching networks by banks are those actually observed, with a counterfactual scenario, where the branching network of the new entity is the sum of the branches of the banks involved in the horizontal merger. The statistical difference between the two estimated measures of competition quantifies the impact of the merger. We apply our test to French and Italian mergers.

Keywords: banking industry, competition and market structure, merger policy

Suggested Citation

Cerasi, Vittoria and Chizzolini, Barbara and Ivaldi, Marc, A Test of the Impact of Mergers on Bank Competition (July 2019). Economic Notes, Vol. 48, Issue 2, pp. n/a-n/a, 2019, Available at SSRN: https://ssrn.com/abstract=3597069 or http://dx.doi.org/10.1111/ecno.12135

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)

London
United Kingdom

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