A test of the impact of mergers on bank competition

摘要

We propose a new test to evaluate the impact of horizontalmergers on competition in the banking industry. The test isdesigned to be applied ex ante to potential mergers whilebeing parsimonious in terms of data, as it only usesinformation on branches in local markets. The test is acounterfactual exercise based on a two‐stage model wherebanks compete in branching and interest rates and requirescomparing the estimated degree of competition in the statusquo, where branching networks by banks are those actuallyobserved, with a counterfactual scenario, where the branchingnetwork of the new entity is the sum of the branches ofthe banks involved in the horizontal merger. The statisticaldifference between the two estimated measures of competitionquantifies the impact of the merger. We apply our test toFrench and Italian mergers.