Rebeca de Juan Díaz
"The independent submarkets model: an application to the Spanish retail banking market"
JEL codes: D40, L11, G21, C25
Keywords: independent submarkets, fragmentation, concentration, banks, branches
Abstract: The aim of this paper is to test the predictions of Sutton's independent submarkets model with data on the Spanish retail banking market. The prediction of this model for aggregates of submarkets is that the form of equilibrium outcome must involve some mimimum degree of size inequality. However, within each submarket, when three conditions hold, the only form of equilibrium outcome will be an extreme 'fragmented' structure. To test these predictions, firstly I propose methods to identify levels of aggregation (submarkets, regions, and national market). Using concentration by towns' data, I find that in single submarket towns the degree of inequality of the size among banks is zero. Moreover, multimarket towns with a significant degree of concentration are shown to be formed by a different number of independent submarkets where each bank owns one branch. Nonetheless, when the regional and national bank markets are considered, the degree of inequality in bank sizes becomes high. These results are consistent with the predictions of the theoretical model.