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The Economics of Regional Demarcation in Banking

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  • Simone Raab/Peter Wenzel

Abstract

The European Commission criticized cooperation among savings and cooperative banks for potentially anticompetitive effects. Using an industrial economics model of banks taking deposits and giving loans, we look at regional demarcation as one of such cooperative ractices. We study two adjacent markets comprising one savings or cooperative bank that focuses on one market and one private commercial bank serving both. We acknowledge that savings and cooperative banks have atypical objective functions. We find that abolishing regional demarcation does increase total loan volume. Due to their partially nonprofit objectives, savings or cooperative banks improve market performance, and they do better without the regional demarcation that shields the private commercial bank from aggressive competition.

Suggested Citation

  • Simone Raab/Peter Wenzel, 2011. "The Economics of Regional Demarcation in Banking," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 63(2), pages 120-144., April.
    • Handle: RePEc:sbr:abstra:v:63:y:2011:i:2:p:120-144
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    More about this item

    Keywords

    Banking; Competition; Cooperation; Non-Profit Firms.;
    All these keywords.

    JEL classification:

    • 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
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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