Bank Concentration and Product Market Competition

Farzad Saidi, Daniel Streitz

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This paper documents a link between bank concentration and markups in nonfinancial sectors. We exploit concentration-increasing bank mergers and variation in banks’ market shares across industries and show that higher credit concentration is associated with higher markups and that high-market-share lenders charge lower loan rates. We argue that this is due to the greater incidence of competing firms sharing common lenders that induce less aggressive product market behavior among their borrowers, thereby internalizing potential adverse effects of higher rates. Consistent with our conjecture, the effect is stronger in industries with competition in strategic substitutes where negative product
market externalities are greatest.
Original languageEnglish
Article numberhhab005
JournalReview of Financial Studies
Number of pages37
ISSN0893-9454
DOIs
Publication statusPublished - 30 Jan 2021

Bibliographical note

Epub ahead of print. Published online: 30. January 2021

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