Market Structure, Outer vs. Inner Competition: The Case of Italy’s Credit Coop Banks

Studying banking networks designed to achieve scale economies for their members, we argue that “inner” competition—competition inside network members—may be inefficient vis-à-vis “outer” competition—competition with outsiders. Testing our hypothesis on branch-level loan productivity per employee at the Banche di Credito Cooperativo (BCCs), Italy’s network of mutual cooperative banks, we find that BCC monopoly always dominates BCC duopoly. Moreover, productivity is generally higher in situations of either BCC monopoly or BCC facing only outer competition vis-à-vis situations exhibiting (also) inner competition. The policy implication is that limits to inner rivalry seem efficiency improving in cooperative banking networks.