The Effects of Past Entry, Market Consolidation, and Expansion by Incumbents on the Probability of Entry in Banking

Abstract

We extend previous research on the determinants of entry into local banking markets. In addition to the variables that have been considered by past research, we consider the correlation of entry with past entry and strategic barriers to entry such as changes in incumbent branching, the presence of small incumbent firms, and market concentration. The analysis defines entry more broadly than has past research by including branch expansion by existing firms. We find significant negative relationships between entry and strategic barriers to entry. Sensitivity analyses find that large changes in the explanatory variables are needed to cause substantial changes in the probability of entry into markets.