Jeffrey Miron
Antitrust policy presents a challenge for both libertarians and policymakers. On the one hand, competitive markets are good, which might suggest policy should limit firm mergers. On the other hand, mergers can have beneficial effects (such as economies of scale and scope or disciplining unproductive firms), so broad opposition to mergers is likely counterproductive.
New research on bank consolidation offers evidence on this tradeoff. Contrary to the belief
that bank mergers reduce competition, increase borrowing costs, and limit households’ access to credit, … [the study finds that m]ergers have no meaningful effect on interest rates, approval rates, or late payments. Merged banks do not appear to use their increased size to charge borrowers more or restrict access to mortgages.
This may be due to
the intense competition in local mortgage markets. The typical county has more than 130 active mortgage lenders per quarter, and the median lender controls just 0.4 percent of its local market. Therefore, even when two banks merge, borrowers generally continue to have many other lending options. In some cases, local competition actually increases after mergers.
Whether these conclusions apply in markets with only a few firms, where mergers might substantially increase market concentration, is harder to know. But this evidence should still remind antitrust and banking regulators to consider the full range of effects from mergers, not just the impact on concentration per se.
Cross-posted from Substack.
