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Multimarket contact in Italian retail banking: Competition and welfare

Jozsef Molnar (), Roberto Violi and Xiaolan Zhou

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 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.

Keywords: Competition; Multi-market contacts; Retail banking; Welfare analysis (search for similar items in EconPapers)
JEL-codes: C52 D43 G21 L13 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1016/j.ijindorg.2013.06.003

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Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:368-381