The opinions expressed do not necessarily reflect those of the Federal Reserve System. The authors would like to thank the editor, two anonymous referees, Adam Ashcraft, Nicola Cetorelli, Manfred Dix, Bob Hunt, George Kaufman, Matthew Shum, and James Vickery for insightful comments, as well as participants at the Federal Reserve Bank of Chicago Bank Structure and Competition Conference, the International Industrial Organization Conference, the Financial Management Association Conference, and a Bank of Canada seminar. Nathan Miller and Philip Ostromogolsky provided excellent research assistance. All remaining errors are the responsibility of the authors.
Entry into Banking Markets and the Early-Mover Advantage
Article first published online: 8 JUN 2007
Journal of Money, Credit and Banking
Volume 39, Issue 4, pages 775–807, June 2007
How to Cite
BERGER, A. N. and DICK, A. A. (2007), Entry into Banking Markets and the Early-Mover Advantage. Journal of Money, Credit and Banking, 39: 775–807. doi: 10.1111/j.1538-4616.2007.00046.x
- Issue published online: 8 JUN 2007
- Article first published online: 8 JUN 2007
- Received November 16, 2004; and accepted in revised form February 14, 2006.
- market entry;
- market structure;
- firm strategy;
- first-mover advantage
Using a sample for 1972–2002 with over 10,000 bank entries into local markets, we find a market share advantage for early entrants. In particular, the earlier a bank enters, the larger is its market share relative to other banks, controlling for firm, market, and time effects, with a market share advantage for early movers between 1 and 15 percentage points, depending on the order of entry. The strongest early-mover advantage is for banks that were in our sample in 1972 and survive into the 1990s. Moreover, early entrants appear to have such hold in the market by strategically investing in larger branch networks. Even controlling for the potential survivorship bias, we find that a bank's share decreases by 0.1 percentage points for a change in its order of entry from nth to (n+ 1)th. High growth markets show a smaller difference between late and early movers, consistent with a larger fraction of consumers yet to be locked in with a bank in these markets.