Multimarket Contact in Italian Retail Banking: Competition and Welfare

Molnar, Jozsef and Violi, Roberto and Zhou, Xiaolan (2010): Multimarket Contact in Italian Retail Banking: Competition and Welfare. Forthcoming in: International Journal of Industrial Organization , Vol. 31, No. 5 (September 2013): pp. 368-381.

Abstract

This paper studies banks' competitive behavior on the deposit side of the Italian retail banking industry. We use a structural model to estimate demand for deposit services and test several supply models. We find that both the competitive, differentiated product Bertrand and the perfectly collusive models are rejected against partially collusive models with coalitions based on the participants' market contact. In the best fitting collusive model, the coalition includes 8 banks with at least 19 overlapped regions. Banks with extensive multi-market contacts tend to be less competitive and behave as if they were maximizing their profit jointly, taking into account the competitive fringe of smaller banks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Competition; Multi-market contacts; Retail banking; Welfare analysis
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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