Market Structure after Horizontal Mergers: Evidence from the Banking Industry

  • Robert M. Adams
  • Richard L. Johnson
  • Steven J. Pilloff
Article

Abstract

Antitrust agencies use measures of market structure to evaluate the likely competitive effects of proposed mergers, but little is known about how measures of market structure change over time, particularly after consummation of mergers and acquisitions. This paper analyzes the changes in market structure 3 and 5 years after mergers in the US banking industry. Our analysis suggests that concentration decreases and the number of banks increases in banking markets where mergers resulted in high concentration levels. In markets where the level of concentration changed by a relatively large amount, our findings are more ambiguous, as the level of concentration decreases, but no effect is found on the number of competitors.

Keywords

Antitrust policy Competition Market structure Banking industry mergers 

JEL Classification

G21 G28 G34 L11 L13 

References

  1. Adams, R. M., & Amel, D. F. (2007). The effects of past entry, market consolidation, and expansion by incumbents on the probability of entry. FRB working paper series. 2007-51.Google Scholar
  2. Akhavein J. D., Berger A. N., Humphrey D. B. (1997) The effects of bank megamergers on efficiency and prices: Evidence from the profit function. Review of Industrial Organization 12(1): 95–139CrossRefGoogle Scholar
  3. Avery R. B., Samolyk K. A. (2004) Bank consolidation and small business lending: The role of community banks. Journal of Financial Services Research 25(2–3): 291–325CrossRefGoogle Scholar
  4. Berger A. N., Demsetz R., Strahan P. (1999) The consolidation of the financial services industry: Causes, consequences, and implications for the future. Journal of Banking and Finance 23(2–4): 135–194CrossRefGoogle Scholar
  5. Berger A. N., Bonime S. D., Goldberg L. G., White L. J. (2004) The dynamics of market entry: The effects of mergers and acquisitions on entry in the banking industry. Journal of Business 77(4): 797–834CrossRefGoogle Scholar
  6. Calomiris C. W., Karceski J. (2000) Is the bank merger wave of the 1990s efficient? Lessons from nine case studies. In: Kaplan S. (eds) Mergers and productivity. University of Chicago Press/NBER, ILGoogle Scholar
  7. Coate M.B., Ulrick S.W. (2006) Transparency at the federal trade commission: The horizontal review process 1996–2003. Antitrust Law Journal 73(4): 531–570Google Scholar
  8. Department of Justice and Federal Trade Commission. (1992). Horizontal merger guidelines (revised April 8, 1997).Google Scholar
  9. Erel, I. (2009). The effect of bank mergers on loan prices: Evidence from the U.S. Review of Financial Studies (forthcoming).Google Scholar
  10. Federal Trade Commission (1999). A study of the commission’s divestiture process.Google Scholar
  11. Federal Trade Commission and the U.S. Department of Justice (2003). Merger challenges data, fiscal years 1999–2003.Google Scholar
  12. Federal Trade Commission (2004). Horizontal merger investigation data: Fiscal years 1996–2003.Google Scholar
  13. Focarelli D., Panetta F. (2003) Are mergers beneficial to consumers? Evidence from the market for bank deposits. American Economic Review 93(4): 1152–1172CrossRefGoogle Scholar
  14. Houston J. F., James C. M., Ryngaert M. D. (2001) Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders. Journal of Financial Economics 60(2–3): 285–331CrossRefGoogle Scholar
  15. Kahn C., Pennacchi G., Sopranzetti B. J. (2005) Bank consolidation and the dynamics of consumer loan interest rates. Journal of Business 78: 99–134CrossRefGoogle Scholar
  16. Keeton W. R. (2000) Are mergers responsible for the surge in new bank chaters?. Federal Reserve Bank of Kansas City Economic Review 85: 21–41Google Scholar
  17. Pilloff S. J. (2005) What’s happened at divest bank offices? An empirical analysis of antitrust divestitures in bank mergers. Multinational Financial Journal 9: 43–71Google Scholar
  18. Prager R. A., Hannan T. H. (1998) Do substantial horizontal mergers generate significant price effects? Evidence from the banking industry. Journal of Industrial Economics 46: 433–452CrossRefGoogle Scholar
  19. Rhoades S. (1998) The efficiency effects of bank mergers: An overview of case studies of nine mergers. Journal of Banking and Finance 22(3): 273–291CrossRefGoogle Scholar
  20. Seelig, S. A., & Critchfield, T. (2003). Merger activity as a determinant of de novo entry into urban bank markets. Working paper 2003-01, Federal Deposit Insurance Corporation.Google Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  • Robert M. Adams
    • 1
  • Richard L. Johnson
    • 2
  • Steven J. Pilloff
    • 3
  1. 1.Division of Research and StatisticsBoard of Governors of the Federal Reserve SystemWashingtonUSA
  2. 2.Antitrust DivisionDepartment of JusticeWashingtonUSA
  3. 3.School of ManagementGeorge Mason UniversityFairfaxUSA

Personalised recommendations