The Economics of Regional Demarcation in Banking

Simone Raab (simone.raab@wiwi.uni-augsburg.de) and Peter Welzel (peter.welzel@wiwi.uni-augsburg.de)
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Simone Raab: University of Augsburg, Department of Economics

No 308, Discussion Paper Series from Universitaet Augsburg, Institute for Economics

Abstract: Cooperation among savings and cooperative banks was criticized by the European Commission because of potentially anti-competitive effects. In an industrial economics model of banks taking deposits and giving loans we look at regional demarcation as one of such cooperative practices. There are two adjacent markets with one savings or cooperative bank being focused on each one and one private commercial bank serving both. We find that abolishing regional demarcation indeed increases total loan volume. Savings or cooperative banks always improve market performance and do better without regional demarcation which shields the private commercial bank from aggressive competition by these banks.

Keywords: banking; competition; cooperation; non-profit firms (search for similar items in EconPapers)
JEL-codes: G21 L13 L33 L41 L44 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-ban and nep-com
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Related works:
Working Paper: The Economics of Regional Demarcation in Banking (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:aug:augsbe:0308

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