Multimarket Contact and Profitability in Banking: Evidence from Italy

In this paper we test the theory according to which multimarket contact is a crucial factor hampering competition among firms, because it lowers the incentive to behave aggressively in one market if there is fear that rivals retaliate in other common markets. We consider the Italian banking industry in the period 2002–2005, employing both market-level and firm-level data. The empirical evidence supports theory predictions, since profitability is positively related to the average number of contacts among banks, and appear to be higher for those credit institutions experiencing more links. This result has also policy implications, given the increasing consolidation (and hence the growing number of interactions in local markets) that has characterized this sector in the last years.

Testing the ‘Quiet Life’ Hypothesis in the Italian Banking Industry

In this paper we test the so‐called ‘quiet life’ hypothesis (QLH), according to which firms with market power are less efficient. Using data on the Italian banking industry for the period 1992–2007, we apply a two‐step procedure. First we estimate bank‐level cost efficiency scores and Lerner indices. Then we use the estimated market power measures, as well as a vector of control variables, to explain cost efficiency. Our empirical evidence supports the QLH, although the impact of market power on efficiency is not particularly remarkable in magnitude.     

Deregulation,Entry, and Competition in Local Banking Markets

Review of Industrial Organization - By applying the Bresnahan-Reiss empirical entry threshold model on Census data for the waves 1981 to 2011, we study the evolution of entry conditions in Italian...