Traditional concerns about concentration in product markets have centered on the social loss associated with the mispricing that occurs when market power is exercised. This paper focuses on a potentially greater loss from market power—a reduction in cost efficiency brought about by the lack of market discipline in concentrated markets. We employ data from the commercial banking industry, which produces very homogeneous products in multiple markets with differing degrees of market concentration. We find the estimated efficiency cost of concentration to be several times larger than the social loss from mispricing as traditionally measured by the welfare triangle.

This article examines the economics of financing small business in private equity and debt markets. Firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle. We show the sources of small business finance, and how capital structure varies with firm size and age. The interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment. We also analyze a number of research and policy issues, review the literature, and suggest topics for future research.

We examine the effects of bank M&As on small business lending using data on over 6000 recent U.S. bank M&As. We are the first to decompose the impact of M&As into the static effects from simply melding the antecedent institutions and the dynamic effects associated with post-M&A refocusing of the consolidated institution. We are also the first to estimate the dynamic reactions of other local banks. We find that the static effects of consolidation reduce small business lending, but are mostly offset by the reactions of other banks, and in some cases also by refocusing efforts of the consolidating institutions themselves.