Concentration and Geographic Proximity in Antitrust Policy: Evidence from Bank Mergers
56 Pages Posted: 8 Jul 2021 Last revised: 15 Oct 2021
Date Written: September 21, 2021
Market concentration (HHI) based antitrust policy can be vulnerable to mismeasurement of substitutability. We provide evidence demonstrating this vulnerability in the banking industry, and argue that HHI-based bank antitrust review can be improved by incorporating a determinant of substitutability between merging banks: the proximity of their branch networks. Using difference-in-differences to estimate the effects of bank mergers, we find that mergers of close-proximity banks lead to more branch closures and to repositioning that is less beneficial for consumer access. Moreover, although rivals offer worse interest rates (prices) after close-proximity mergers, the merging parties' deposit growth (quantity) declines. These results hold for transactions that evade HHI-based enforcement criteria. Our findings also inform antitrust policy for other industries where firms’ locations are an important and observable determinant of substitutability.
Keywords: Mergers and acquisitions, Merger Policy, Merger screening
JEL Classification: L41, G34, L22
Suggested Citation: Suggested Citation