Multimarket Contact and Profitability in Banking: Evidence from Italy |
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Authors: | Paolo Coccorese Alfonso Pellecchia |
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Affiliation: | (1) Department of Economics and Statistics, University of Salerno, Via Ponte don Melillo, 84084 Fisciano (SA), Italy;(2) CELPE and CSEF, University of Salerno, Via Ponte don Melillo, 84084 Fisciano (SA), Italy |
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Abstract: | 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. |
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Keywords: | Banking Competition Multimarket contact Mutual forbearance Linked oligopoly |
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