Patterns and Determinants of Entry in Rural County Banking Markets

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Patterns and Determinants of Entry in Rural County Banking Markets

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Title: Patterns and Determinants of Entry in Rural County Banking Markets
Author: Feinberg, Robert M.
Abstract: Recent work on entry has focused on structural determinants of the number of firms in a market rather than on the role of profits; profits are viewed as both difficult to measure accurately and less relevant in explaining equilibrium numbers of firms in a market. In this paper I consider 115 rural markets in the U.S., and both describe and explain patterns of bank and thrift entry over the past 10 years, with particular interest in the decisions of top bank holding companies to enter rural markets and the influence their presence has on entry of smaller banking institutions. The paper explores several dimensions of entry and competition in rural banking markets. One descriptive feature of interest is the surprisingly small number of markets in which monopoly banking is likely to be a concern. In terms of explaining both numbers of banks across markets and gross and net entry within markets, market size and its growth seem to be major factors, consistent with recent literature. The role of leading bank holding companies is found to be important in stimulating entry of smaller rivals. This result is consistent with earlier work suggesting that merger and acquisition activity tends to stimulate de novo entry, while also with the view that large firm presence may be a signal to potential entrants of future growth prospects in the market.
Description: Working Paper No. 2005-07. 27 pages.
URI: http://hdl.handle.net/1961/4962
Date: 2005-08


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