Porrini, Donatella; Ramello, Giovanni B. --- "Competition in banking: switching costs and the limits of antitrust enforcement" [2005] ELECD 114; in Marciano, Alain; Josselin, Jean-Michel (eds), "Law and the State" (Edward Elgar Publishing, 2005)

Book Title: Law and the State

Editor(s): Marciano, Alain; Josselin, Jean-Michel

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843768005

Section: Chapter 13

Section Title: Competition in banking: switching costs and the limits of antitrust enforcement

Author(s): Porrini, Donatella; Ramello, Giovanni B.

Number of pages: 23

Extract:

13. Competition in banking: switching
costs and the limits of antitrust
enforcement
Donatella Porrini and Giovanni B. Ramello*

1 INTRODUCTION

A recurring theme in the analysis of competition in the banking sector is
the problem of stability, and the regulatory constraints that are conse-
quently 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 eco-
nomic policy decisions seek to avert. Therefore, as discussed in more 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.
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 sys-
temic repercussions of the normal workings of the competitive process. The
central problem, in this case, is entrepreneurial risk, which must necessar-
ily exist in any competitive market, and plays a decisive role in ordaining
the entry and exit of competitors. However, in the specific case of banks,
price competition tends to ...