The Effects of Past Entry, Market Consolidation, and Expansion by Incumbents on the Probability of Entry in Banking
We extend previous research on the determinants of entry into local banking markets. In addition to the variables that have been considered by past research, we consider the correlation of entry with past entry and strategic barriers to entry such as changes in incumbent branching, the presence of small incumbent firms, and market concentration. The analysis defines entry more broadly than has past research by including branch expansion by existing firms. We find significant negative relationships between entry and strategic barriers to entry. Sensitivity analyses find that large changes in the explanatory variables are needed to cause substantial changes in the probability of entry into markets.
KeywordsBank branching Barriers to entry Entry in banking New bank charters Strategic entry barriers
JEL classificationE44 E52 G32 L1
The views expressed here are those of the authors and do not necessarily reflect those of the Board of Governors or its staff. We thank Timothy Satterfield, Rebecca Staiger, and Miranda Mei for their excellent research assistance and Nicola Cetorelli, Andrew Cohen, Robert Feinberg, Tim Hannan, Beth Kiser, Robin Prager, attendees of a Federal Reserve workshop, the editor, and referees for helpful suggestions. Any remaining errors are the responsibility of the authors.
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