Review of Industrial Organization 12: 1–8, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Research on IO Topics in Banking: An Introduction
STEPHEN A. RHOADES
Financial Structure Section, Federal Reserve Board, Washington, DC 20551, U.S.A.
When Geoff Shepherd, the General Editor of this Review, asked the Board of
Editors for ideas on a special issue, it occurred to me that the banking industry
would probably be a good candidate. Of course, it is a very important industry
that plays a major role in the savings-investment process and in the transmission of
monetary policy.But banking is also a verylargeindustry that includes as customers
practically every household and business in the United States, and it is undergoing
epic changes, including an unprecedented merger movement that is almost certain
to continue for years. These changes and the characteristics of the banking industry
make the industry an excellent laboratory for analyzing competition and strategic
behavior, among other things. Indeed, during the past decade or so, there has
been more IO-related research in banking than many students of IO might expect.
However, because the industry is so large and ubiquitous, and such major changes
are occurring in the industry, there are remarkable opportunities for additional
research that would help to inform public policy and increase our understanding of
competition and strategic behavior in real-world markets.
In soliciting papers for this issue, I asked for papers that examine a typical IO
subject within the context of banking. I sent letters of solicitation to approximately
two dozen economists located at universities or government agencies, who had a
record of IO research in banking. All of the submitted papers and proposals were
reviewed by three economists with an IO-banking background. Five proposals or
draft papers were declined. The six papers that were accepted and appear in this
issue were subject to two rounds of revision. I think the papers we have included,
which analyze topics ranging from the inﬂuence of new entry and mergers on proﬁt
performance to the effect of consumer switching costs on prices, provide a good
illustration of IO research that is being done in banking. All of the papers present
applied research in that they are all empirical studies, all have policy implications to
Federal Reserve Board, Stop 149, Washington, D.C. The views expressed herein are the author’s
and do not necessarily reﬂect the views of the Board of Governors.