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A multiperiod model of competition in retail banking

Author

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  • Barbara Chizzolini

    (Bocconi University)

Abstract

This paper presents a two-period model of branching behaviour and competition in retail banking. It extends a static model, from which it borrows most of its theoretical underpinnings, by adding information on banks branching strategies under the (realistic) assumption that it takes time and strategic adjustments for a bank to reach its optimal branching network size. The estimated model yields measures of competition and measures of benefits and costs by bank and by market and their evolution in time. It results that between 2004 and 2006 in local Italian retail banking, competition and banks’ efficiency increased. There is evidence of crosstime subsidisations: banks may operate at suboptimal branching sizes, with benefits lower than costs, at some point in time, to reach “optimality” in the future.

Suggested Citation

  • Barbara Chizzolini, 2011. "A multiperiod model of competition in retail banking," Rivista Bancaria - Minerva Bancaria, Istituto di Cultura Bancaria Francesco Parrillo, issue 3, June.
    • Handle: RePEc:rvs:bancar:11_3_2
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    Cited by:

    1. Cerasi, Vittoria & Chizzolini, Barbara & Ivaldi, Marc, 2009. "The Impact of Mergers on the Degree of Competition in the Banking Industry," TSE Working Papers 09-113, Toulouse School of Economics (TSE), revised 07 Jun 2012.

    More about this item

    Keywords

    Banking industry; Strategic Branching Behaviour; Competition; Choice models; Probit;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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