This paper analyses trends in competition in the Italian banking system in the period 1994-2013. It uses an innovative metrics of cost efficiency, which measures the elasticity of profits relative to costs. The analysis also focuses on the crisis years and on the regional dimension of the phenomenon.
During the two decades examined, the elasticity of profits to marginal costs is negative and statistically significant: less efficient banks were penalized by competition, with a larger decline in their profits. The financial crisis reduced competition, partly offsetting the increase recorded in the previous period. Also owing to the greater presence of mutual banks, operating in markets that are better protected by informational barriers, the North-East exhibited slightly lower levels of competition.
