Description

In this paper, I present a structural discrete-choice model for deposit services. This model produces estimates of different supply functions at the MSA and bank levels. Combining this information with detailed cost data per bank at the national level, I trace the degree of competition in the banking system and perform compensatory analysis. I derive and estimate the model under three different assumptions: Nash-Bertrand competition, perfect collusion, and partially collusive equilibrium. The findings show that multimarket contacts in the US banking system lead to highly competitive behavior. Also, I measure the variation in consumer welfare as if there was a Nash-Bertrand competition vis-à-vis the identified market equilibrium. I show this change to be between 1.5 to 3.8 cents per dollar deposited, which is equivalent to an increase in (stock) welfare of about 0.65 percent points of a one year US GDP.