Regional Competition in US Banking

Trends and Determinants

  • Alexander Erler
  • Horst Gischer
  • Bernhard Herz
Schlagworte: Noncooperative Game Theory, Signaling Games, Equilibrium Selection, Harsanyi-Selten theory, Risk Dominance, Tracing Procedure


Competition in the US banking industry as measured by the Lerner Index has on average increased substantially during the last decade. At the same time, regional differences in competition on the state level have decreased considerably. Based on a dynamic panel framework we find that these developments are mainly driven by industry specific factors such as the costs to income ratio. The empirical evidence indicates that inefficiency and the Lerner index are significant negatively correlated. Macroeconomic conditions appear to have supported these trends in competition, however, to a somewhat lesser extent.