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The Italian Banking Structure in the 1990s: Testing the Multimarket Contact Hypothesis
Author(s) -
De Bonis Riccardo,
Ferrando Annalisa
Publication year - 2000
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/1468-0300.00031
Subject(s) - collusion , rivalry , loan , competition (biology) , monetary economics , market share , banking industry , economics , market concentration , interest rate , business , market structure , financial system , industrial organization , microeconomics , finance , ecology , biology
The multimarket contact hypothesis holds that more contacts between firms competing in the same markets may induce more collusion. This paper tests the hypothesis for the Italian banking market, analysing the behaviour of the largest Italian banks from 1990 to 1996. Market rivalry is gauged by changes in loan market shares and interest rates in each Italian province. We estimate the effects of increasing multimarket contacts, concentration indicators, banks' costs and loan demand on variations in market shares and interest rates. No support is found for the multimarket contact hypothesis. Geographical overlap in banking is positively correlated with changes in market shares, confirming the thesis of an overall increase in competition within the Italian banking system. Greater multimarket links also seem to correspond to lower lending rates. (J.E.L.:G21, C33, L40.)