Entry and competition in banking

Economic theory suggests that, ceteris paribus, new entry of firms will increase rivalry in a market. This study analyzes 184 banking markets to determine whether net market entry over the period 1968–1974 (entry less exist) influenced rivalry (mobility and turnover among top five firms). Results of a multivariate regression analysis indicate no relationship between entry and rivalry. Two possible explanations for this somewhat surprising finding are: (1) new entry into banking markets is typically on a relative small scale, and (2) if potential competition had been an effective factor prior to entry in some of the markets where net entry took place, the potential effect of new entry on rivalry may have been very small. This would tend to obscure a systematic relationship between net entry and rivalry.