Entry into Banking Markets and the Early‐Mover Advantage

Entry into Banking Markets and the Early‐Mover Advantage Using a sample for 1972–2002 with over 10,000 bank entries into local markets, we find a market share advantage for early entrants. In particular, the earlier a bank enters, the larger is its market share relative to other banks, controlling for firm, market, and time effects, with a market share advantage for early movers between 1 and 15 percentage points, depending on the order of entry. The strongest early‐mover advantage is for banks that were in our sample in 1972 and survive into the 1990s. Moreover, early entrants appear to have such hold in the market by strategically investing in larger branch networks. Even controlling for the potential survivorship bias, we find that a bank's share decreases by 0.1 percentage points for a change in its order of entry from nth to (n+ 1)th. High growth markets show a smaller difference between late and early movers, consistent with a larger fraction of consumers yet to be locked in with a bank in these markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Money, Credit and Banking Wiley

Entry into Banking Markets and the Early‐Mover Advantage

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Publisher
Wiley
Copyright
Copyright © 2007 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0022-2879
eISSN
1538-4616
D.O.I.
10.1111/j.1538-4616.2007.00046.x
Publisher site
See Article on Publisher Site

Abstract

Using a sample for 1972–2002 with over 10,000 bank entries into local markets, we find a market share advantage for early entrants. In particular, the earlier a bank enters, the larger is its market share relative to other banks, controlling for firm, market, and time effects, with a market share advantage for early movers between 1 and 15 percentage points, depending on the order of entry. The strongest early‐mover advantage is for banks that were in our sample in 1972 and survive into the 1990s. Moreover, early entrants appear to have such hold in the market by strategically investing in larger branch networks. Even controlling for the potential survivorship bias, we find that a bank's share decreases by 0.1 percentage points for a change in its order of entry from nth to (n+ 1)th. High growth markets show a smaller difference between late and early movers, consistent with a larger fraction of consumers yet to be locked in with a bank in these markets.

Journal

Journal of Money, Credit and BankingWiley

Published: Jun 1, 2007

References

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