Bank Concentration and Product Market Competition

Abstract This paper documents a link between bank concentration and markups in nonfinancial sectors. We exploit concentration-increasing mergers variation banks’ market shares across industries show that higher credit is associated with high-market-share lenders charge lower loan rates. argue this due to the greater incidence of competing firms sharing common induce less aggressive product behavior among their borrowers, thereby internalizing potential adverse effects Consistent our conjecture, effect stronger competition strategic substitutes where negative externalities are greatest.