WHO COMPETES WITH WHOM?
THE CASE OF DEPOSITORY INSTITUTIONS
Robert M. Adamsw
Kenneth P. Brevoortz
Elizabeth K. Kiser§
The willingness of consumers to substitute between banks and thrifts
and between multimarket and single-market institutions is of strong
interest to policymakers, yet little empirical work exists in this area. We
estimate a structural model of consumer choice of depository
institutions using a broadly representative panel data set covering the
U.S. from 1990–2001. Using a ﬂexible framework, we uncover utility
parameters that affect a consumer’s institution choice and measure the
degree of market segmentation for two institutional subgroups. Our
estimated parameters, elasticities and policy experiments suggest limited
substitutability between banks and thrifts and between multimarket and
single-market institutions, especially in urban markets.
NDERSTANDING HOW CUSTOMERS SUBSTITUTE AMONG FIRMS
is central to
analyzing competition and applying antitrust policy. In retail banking, the
volume of merger applications and the need for regulatory transparency
have led to a reliance on established guidelines. These guidelines, consisting
mainly of measures of market concentration, are guided by prior economic
research and anecdotal evidence. While previous empirical studies of the
banking industry have emphasized geographic market deﬁnition, policy-
makers in merger cases often make additional judgments based on charter
type (e.g., commercial banks versus thrift institutions). Although recent
work suggests that this type of market segmentation may occur, no study has
THE JOURNAL OF INDUSTRIAL ECONOMICS 0022-1821
Volume LV March 2007 No. 1
Journal compilation r 2007 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics. Published
by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK, and 350 Main Street, Malden, MA 02148, USA.
The views expressed are those of the authors and do not necessarily reﬂect the position of
the Federal Reserve System, the Federal Reserve Board, or its staff. The authors would like to
thank Dean Amel, Ron Borzekowski, Nicola Cetorelli, Andrew Cohen, Astrid Dick, Tim
Hannan, Moshe Kim, Myron Kwast, Craig Peters, Steve Pilloff, Robin Prager, Frank
Verboven, the participants in the 2003 Applied Microeconomics System Conference and the
2003 Conference on Banking Competition in Leuven, Belgium, and two anonymous referees.
wAuthors’ Afﬁliation: Federal Reserve Board, Washington, DC 20551, U.S.A.
zFederal Reserve Board, Washington, DC 20551, U.S.A.
§Federal Reserve Board, Washington, DC 20551, U.S.A.