Description
Abstract: We evaluate how bank mergers affect consumer welfare when banks set deposit rates with a high degree of uniformity across their branch networks. First, we document that merger-induced changes to local market concentration are only weakly correlated with pricing decisions. Second, we develop a structural model of the banking sector to simulate equilibrium post-merger deposit rates with and without uniform pricing. The simulated deposit rates from the model with uniform pricing best match the observed changes in deposit rates following bank mergers. We use the model to evaluate antitrust decisions that force acquirers to divest branches in order to contain local market concentration levels. Our counterfactual exercises suggest that forced divestitures sometimes improve consumer welfare but can also impose consumer welfare losses when antitrust regulators do not consider that uniform pricing practices might lead to better deposit rates at acquired branches after a merger.