Contestability, Technology and Banking

Reint Gropp and Sandrine Corvoisier

No 09-007, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We estimate the effect of internet penetration on retail bank margins in the euro area. Based on an adapted Baumol [1982] type contestability model, we argue that the internet has reduced sunk costs and therefore increased contestability in retail banking. We test this conjecture by estimating the model using semi-aggregated data for a panel of euro area countries. We utilise time series and cross-sectional variation in internet penetration. We find support for an increase in contestability in deposit markets, and no effect for loan markets. The paper suggests that for time and savings deposits, the presence of brick and mortar bank branches may no longer be of first order importance for the assessment of the competitive structure of the market.

Keywords: Banking structure; Contestability; Internet (search for similar items in EconPapers)
JEL-codes: D43 E43 G21 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ban, nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7532

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