Agony of Choice – Trading off Stability and Competition in the Banking Markets

Falk Laser and Michael Hellwig

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: We investigate the trade-off between financial stability and competition policy by focusing on the merger of ABN AMRO and Fortis Bank NL in the Dutch retail banking market. The financial crisis delayed the completion of the merger giving rise to anti-competitive behavior in the transitory period. Based on a structural model we simulate interest rates for savings accounts treating the banks as two separate entities despite a factually combined ownership. Our analysis builds on representative data on Dutch consumer choice for savings accounts conditional on individual choice sets and product characteristics covering the time period from 2008 to 2010. We model the demand for savings accounts as discrete choice for differentiated products using a random-coefficients logit model. On the supply side we assume Bertrand Nash competition in a multiproduct oligopoly. Our results indicate anti-competitive effects in terms of too low interest rates. To the best of our knowledge we are the first to apply merger simulation methods in the context of banking using disaggregated data.

Keywords: Antitrust; competition policy; merger analysis; state aid; retail banking; random-coefficients logit models; differentiated products. (search for similar items in EconPapers)
JEL-codes: D22 G21 G34 L11 L25 L40 L41 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban, nep-com and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203536

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