More Firms Doesn’t (Necessarily) Mean Better Competition

Source: EconLog
by Kevin Corcoran

“Prior to the Great Depression, Canada had a largely unregulated banking system. From that system, what emerged was a relatively small number of very large banks that operated across the country. In the United States, there was a highly regulated banking system that (among other things) heavily skewed towards a ‘unit banking’ system rather than a branch banking system. That is, banks were geographically limited in how far they could expand … and were thus limited in size. From this system, what emerged was a system of tens of thousands of fairly small banks across the country. From a ‘more firms = more competition = better’ perspective, it might seem like the United States, with its vast number of banks, would be in a better situation than Canada, which was ‘dominated’ by just a few very large banks. But in practice, the opposite was true.” (06/10/24)