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Market Concentration and Uniform Pricing: Evidence from Bank Mergers

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  • João Granja
  • Nuno Paixao

Abstract

We show that U.S. banks price deposits almost uniformly across their branches and that this pricing practice is crucial to explain the deposit rate dynamics following bank mergers. We find a strong and sharp post-merger convergence between the deposit rates of the acquired branches and the median deposit rate of the acquirer. This pattern is almost fully explained by adjustments in the deposit rates of the acquired branches, irrespective of whether their rates were above or below those practiced by the acquirer. Acquired branches lose deposits and local market share, especially when they decrease their rates due to uniform pricing. Local competitors respond to changes in deposit rates at the acquired branches by adjusting their own deposit rates in the same direction. We find that pre-merger differences in deposit rates between merged entities explain more of the post-merger evolution of deposit rates than the predicted changes in local market concentration induced by the merger. This result indicates that competition authorities would be well advised to review the potential impact of pre-merger pricing differences in evaluating a merger within an industry with strong uniform pricing practices.

Suggested Citation

  • João Granja & Nuno Paixao, 2021. "Market Concentration and Uniform Pricing: Evidence from Bank Mergers," Staff Working Papers 21-9, Bank of Canada.
    • Handle: RePEc:bca:bocawp:21-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial institutions; Financial system regulation and policies; Market structure and pricing;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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