COMMERCIAL-IN-CONFIDENCE
These developments in the retail banking market seem very likely to reduce the dominance of the four principal clearing banks further, particularly in the corporate sector where the other domestic banks have increased their share of lending to 12.6% in 1991, mostly among small and medium companies.
16 Some statistics are set out in the attached appendix.
Competition
17 Banking markets are complex and in practice consist of a series of sub-markets, which contain various degrees of competition. An important issue in the proposed takeover is whether the reduction in the number of large clearers from four to three will have a serious adverse effect on choice to customers in these sub-markets. The following analysis suggests that only in certain sectors would increased concentration be likely to have an
adverse effect.
18
Some markets in which clearing banks operate are clearly competitive in that there are large numbers of players, and
This is the switching costs for customers are relatively low. case for sectors such as deposits (where there are at least 15 competing nationwide banks or building societies), mortgages (where the building societies have a 70% market share), credit cards (where there are 11 Mastercard issuers and 23 Visa issuers) and wholesale lending. In such cases a merger is likely to have
little effect on choice.
19 Second, there may be sectors where the clearers are the principal players, but potential competition from other institutions limits their ability to exploit their customers. Such a situation is possible when switching costs are low for customers, and when irreversible (sunk) costs that would be incurred by new competitors are also minor (technically, this is a contestable market). The mid-corporate market in the UK may approximate to such a market, given that although the clearers tend to dominate lending to such firms, their ability to widen
COMMERCIAL-IN-CONFIDENCE
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