Entry decisions after deregulation: the role of incumbents' market power

Lorenzo Ciari () and Riccardo De Bonis
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Lorenzo Ciari: European University Institute - Firenze (I)

No 50, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper investigates the role of incumbents' market power in shaping the entry decisions of Italian banks after branching liberalization in 1990. Using a unique dataset on 260 banks, we find that entry over the 1990-1995 period was targeted towards markets that were more competitive to begin with, i.e. where banking spreads were smaller. The results confirm the entry deterrent role of market power in the short-run and show a long run effect of regulation that survives after the removal of administrative barriers. The capacity of market power to discourage entry is confirmed in instrumental variables specifications, where we use the characteristics of the local banking markets in 1936, a proxy for tightness of banking regulation, to identify an exogenous source of variation in the spreads.

Keywords: banking; barriers to entry; deregulation; market power (search for similar items in EconPapers)
JEL-codes: G28 L1 L5 (search for similar items in EconPapers)
Pages: 38
Date: 2011-04
New Economics Papers: this item is included in nep-ban, nep-com, nep-ent, nep-hme, nep-ind and nep-reg
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Citations: View citations in EconPapers (2)

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