Sunk Costs and Competitiveness of European Banks after Deregulation

This paper investigates the determinants of the structure of the banking industry by fitting a monopolistic competition model to a sample of banks drawn from nine EEC countries over 1989-1993. In the theoretical model, banks decide strategically both entry and the branching size of their network. The estimation then measures the branching costs and an upper bound for the entry costs. It also assesses how these costs evolve over time and to what extent various European directives, aiming at deregulating the banking industry, influence them.

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