LOCAL CHARACTERISTICS, CONTESTABILITY, AND THE DYNAMIC STRUCTURE OF RURAL BANKING - A MARKET STUDY

If a market is perfectly contestable, incumbent firms in even highly c oncentrated markets will produce a level of output consistent with a w elfare maximum. Alternatively, ifa market is imperfectly contestable, the conduct of incumbent firms will be influenced by the degree of act ual and potential competition. The results of our simultaneous, two-eq uation model of bank behavior and actualized potential competition bad to the conclusion that rural banking markets are imperfectly contesta ble. This finding suggests that rural bank policy should continue to p romote both actual and potential competition.