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fees, put obstacles to passing over lower fees or costs to cardholders, sustain market power, and prevent efficient operations.

Concerning the retail banking product markets, the Commission stressed how the conjunction of sustained high profitability, high market concentration and evidence of entry barriers raises concerns about banks’ ability to influence the level of prices for consumers and small firms in some Member States. The presence of credit registers, holding confidential data that lenders use to set loan rates, may be used to exclude new entrants to retail banking markets. Some forms of cooperation among banks, as those taking place among savings and cooperative banks, can reduce competition and deter market entry. The widespread practice of product tying can reduce customer choice and increase banks’ power in influencing prices. Finally, the presence of high switching costs can lead to high profit margins for banks.

Some of the concerns expressed in the Commission‘s inquiry are certainly legitimate although it has to be stressed that the existence of high profits is not per se the symptom of lack of competition. The analysis should center on the sources of market power like exogenous and endogenous switching costs and practices such as tying. Furthermore, in two-sided markets, such as payment cards, care must be taken to conduct a proper analysis that deals with their specificities.

8. Concluding remarks Banking is no longer an exception in the enforcement of competition policy rules. This is as it should be, since the provision of a competitive “financial input” in the production process is crucial for the competitiveness of an economy. Given the fragility of the financial system, however, there may be a potential trade-off between competition and stability. Although recent theories have questioned such a trade-off, it remains unclear whether competition policy should be more lenient with market power in the banking industry. This applies, for example, to the evaluation of mergers. The reason is that market power may have a moderating effect on the incentives to take risk. The question

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