DYNAMICS OF MARKET CONCENTRATION IN UNITED-STATES BANKING, 1966-86

This paper estimates the speed at which local banking market concentration adjusts to its long-run equilibrium level. Long-run market concentration is estimated as a function of the attractiveness of entry and regulatory barriers to entry into the market. The speed of adjustment is allowed to vary across markets and depends on the deviation of market from normal profits. The empirical results from panels of data over 5, 10, 15 and 20 years show that concentration levels in local banking markets adjust slowly over time. Markets with unusually high or low profits show significantly more rapid adjustment than other markets over shorter time periods, but the differences are small in magnitude. Legal barriers to entry significantly impede market adjustment over longer time periods. © 1990.