Intensity of Competition and Market Structure in the Italian Banking Industry

This work tests the predictions of Sutton’s model of independent submarkets for the Italian retail banking industry. In the first part of this paper, I develop a model of endogenous mergers to evidence the relationship between firms’ conduct, market entry and market structure. In the second part, I identify the submarket dimension and estimate the relationship between market size and market structure using data on bank branches. The size of the submarkets turned out to be at most provincial whereas the limiting concentration index - as argued by Sutton for industries with exogenous sunk costs - goes to zero as the market becomes larger