THE PERCEIVED SIZE OF SMALL BUSINESS BANKING MARKETS

Definition of markets is fundamental to any analysis of competitionand is the first step in enforcement of antitrust statutes.In the banking industry, geographic market definitions havebeen the subject of considerable discussion in recent years.This paper utilizes a survey conducted by the National Federationof Independent Business Research Foundation in 2001. The surveyasked a variety of questions relating to American small businesses'experience with financial institutions, including a questionasking how many banks were in the market area where the smallfirm did most of its business. Using the zip code of the surveyrespondent, this answer was compared with the number of banksin the same county, in the same metropolitan area, or in thelocal banking market as defined by the Federal Reserve. Theresults show that both urban and rural markets as perceivedby small businesses are considerably smaller than markets asdefined by either the US Department of Justice or the FederalReserve.