Entry into banking markets and the first-mover advantage

Using a sample for 1972-2002 with over 8,000 bank entries into local markets, we find a market share advantage for earlier entrants. In particular, the earlier a bank enters, the larger is its market share relative to other banks, controlling for firm, market and time effects, with a market share advantage for early movers between 8 and 12 percentage points, depending on the order of entry. This magnitude also varies according to the entry method used, being attenuated for banks that enter through mergers, as opposed to opening a branch or through a de novo charter. Branded entrants suffer a lower disadvantage relative to unbranded entrants. The market share advantage is diminished in markets with high population growth, presumably as new consumers in the market have yet to be locked in with a bank and face no switching costs. The results are stable over the period.