Discussion

Martin Eichenbaum interpreted the rising concentration in the banking industry through the lens of the authors’ framework. He noted that several regional banks in the Southwest had recentlymerged to forma superregional bank. According to banking professionals, increasing returns play an important role in this industry, he said. Eichenbaum argued that this form of concentration seems consistent with increasing sunk costs or barriers to entry. He asked the authors about their thoughts on the subject. The authors clarified that most of their analysis excludes financial services. They agreed that a rise in barriers to entry could explainmergers in the banking industry, together with an increase in efficiency from mergers. They noted, however, that the evidence on increasing returns to scale in the banking industry remains mostly inconclusive. The emergence of “fintech”might potentially create more scope for such efficiency gains, they argued. The authors emphasized the role of lobbying by the banking industry. As an example, theymentioneddata portability,which allows a client to share her portfolio information with another institution to obtain financial advice. Banks defeated calls for increased data portability in the US, the authors pointed out. On the contrary, they lost in the European Union, where their lobbying power is smaller. This illustrates the role of increased lobbying for the rise in barriers to entry in the US, according to the authors. Laura Veldkamp noted that uncertain revenue streams should command riskpremiawhen investors ormanagers are risk averse. Shepointed out that markups could be the firms’ compensation for that revenue risk andmight not reflect market power at all. Veldkampwondered how the authors took this into account in their analysis. The authors said that they measure firms’ value using market values, which should address concerns related to risk premia. On the relation between firms’ value and entry into an industry, they referred to another paper of theirs. Fixing