Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, July 2, 2009

Contestability, Technology and Banking

Posted by D. Daniel Sokol

Sandrine Corvoisier (European Central Bank) and Reint Eberhard Gropp (European Business School) explain Contestability, Technology and Banking.

ABSTRACT: We estimate the effect of internet penetration on retail bank margins in the euro area. Based on an adapted Baumol [1982] type contestability model, we argue that the internet has reduced sunk costs and therefore increased contestability in retail banking. We test this conjecture by estimating the model using semi-aggregated data for a panel of euro area countries. We utilise time series and cross-sectional variation in internet penetration. We find support for an increase in contestability in deposit markets, and no effect for loan markets. The paper suggests that for time and savings deposits, the presence of brick and mortar bank branches may no longer be of first order importance for the assessment of the competitive structure of the market.

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Keep it under the rug. :)

Posted by: nick | Jul 6, 2009 1:02:03 PM

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