Competition in Banking: Switching Costs and the Limits of Antitrust Enforcement

Abstract

A recurring theme in the analysis of competition in the banking sector is the problem of stability, and the regulatory constraints that are consequently imposed on economic agents operating in this particular market.Generally speaking, antitrust intervention in the banking is heavily influenced by considerations of stability, because although competitive processes are inherently selective, and presuppose the possible exit from the market of inefficient competitors, this is precisely the eventuality that economic policy decisions seek to avert. Therefore, as discussed more in detail in the paragraphs below, the regulation has historically given precedence to the stability objective, relegating competition to second place. This is borne out by the many structural and operational constraints imposed on the authorities and laws that ought to safeguard competition, and the elevation of administrative barriers to entry. Now, under a law and economics perspective, regulatory intervention in the market is justified as a means of counteracting the emergence of inefficiencies, and so we can apply this same justification to the banking sector, where a specific inefficiency arises from the macroeconomic and systemic repercussions of the normal workings of the competitive process. The central problem, in this case, is entrepreneurial risk, which

Class action and financial markets: insights from law and economics

“…To some extent, it can even be asserted that the goal of stability has long absorbed regulators' attention at the expense of the efficiency of financial markets, for example by roughly sidestepping competition (Porrini & Ramello, 2005a). To reach this objective, national legislators have generally provided devices resting upon ex-ante regulation and supervision.…”