Multimarket contact, competition and pricing in banking

In this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model, in which the divergence of price from marginal cost is a function of multimarket linkages. The model is estimated using aggregate data from the Italian regions for the...

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Bibliographic Details
Published in:Journal of international money and finance 2013-10, Vol.37, p.187-214
Main Authors: Coccorese, Paolo, Pellecchia, Alfonso
Format: Article
Language:English
Subjects:
Banking
Collusion
Competition
Competition between banks
Conduct
Correlation analysis
Economic models
Economic theory
Financial services
Indexes
Marginality
Market structure
Pricing
Regional analysis
Studies
Western Europe
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Summary:In this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model, in which the divergence of price from marginal cost is a function of multimarket linkages. The model is estimated using aggregate data from the Italian regions for the years 1997–2009. Our results show that multimarket contact is positively and significantly correlated to the market power index, and is also connected to both home and non-home market concentration. The evidence is robust to changes in model specification and multimarket contact measures, and supports the idea that firms which have a greater amount of contact are more likely to collude.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2013.06.010