Competition in markets with dominant firms: A note on the evidence from the Italian banking industry

In this paper we consider the Italian banking industry, where the eight largest firms operate at a national level, manage about a half of total loans, and have a notably larger dimension than the other competitors. We estimate a structural model containing a behavioural parameter, in order to assess the market conduct of the largest banks for the period 1988-2000. Our finding is that, in spite of their noteworthy size and significant market share, these banks have been characterised by a more competitive conduct than the Bertrand-Nash outcome: this is in line with the results of the latest literature of the field, for which in the banking industry there is often no conflict between competition and concentration. (C) 2004 Elsevier B.V. All rights reserved.