Abstract – This paper examines the effects of bank privatization on the market structure of the banking industry. A dynamic game between Brazilian public and private banks is estimated. We show that profits of private banks are positively affected by the number of public banks and negatively affected by the number of private banks operating in small isolated markets. We used the model to analyze two counterfactual scenarios. In the first, public banks are privatized; in the second public banks are closed. Both counterfactuals predict a significant drop in the number of bank branches operating in small isolated markets.

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