By means of two NEIO techniques, this paper analyzes the conduct of a group of Italian single-branch banks operating as monopolists in small local areas (municipalities) in the years 1988–2005, in order to assess pricing behavior in highly concentrated banking markets. Both tests strongly reject the hypothesis of pure monopoly pricing: regardless the advantageous condition, these banks are able to exploit only partially their market power, principally by reason of the nearby competition, the latest banking consolidation trend and the local presence of big banks. Employing another sample, we also show that in duopolistic markets the conduct of single-branch banks is virtually competitive.

In this paper we consider the Italian banking industry, where the eight largest firms operate at a national level, manage about a half of total loans, and have a notably larger dimension than the other competitors. We estimate a structural model containing a behavioural parameter, in order to assess the market conduct of the largest banks for the period 1988–2000. Our finding is that, in spite of their noteworthy size and significant market share, these banks have been characterised by a more competitive conduct than the Bertrand–Nash outcome: this is in line with the results of the latest literature of the field, for which in the banking industry there is often no conflict between competition and concentration.