Multimarket Contact, Competition, and Performance: An Application to Turkish Deposit Banks
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Abstract
The banking sector plays a pivotal role in financial markets, providing an ideal setting to examine multimarket contact (MMC)—a phenomenon where banks compete against the same rivals across multiple markets. This study investigates how MMC dynamics influence bank risk and performance, particularly in the context of technological advancements and the post-COVID-19 banking landscape. Using panel data from 17 deposit banks operating continuously in the Turkish banking system between 2012 and 2021, the study employs the Generalized Method of Moments (GMM) to analyze the effects of MMC. The findings indicate that MMC intensifies competition in the Turkish banking sector, leading to improved asset quality but negative impacts on profitability, overall performance, and bankruptcy risk. These results suggest that while broader market exposure enhances risk management and credit quality, heightened competition erodes profitability and financial stability. Given the increasing digitalization of banking services and the shift towards branchless banking, regulators and financial institutions should reconsider market expansion strategies, balancing competition with financial sustainability. This study contributes to the literature by offering empirical insights from an emerging market and highlighting the interplay between MMC, financial stability, and technological evolution in banking. The findings hold practical implications for policymakers, regulators, and financial institutions seeking to optimize competitive strategies while ensuring banking sector resilience.
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