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Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium

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  • Jacob A. Bikker

    (De Nederlandsche Bank and Utrecht School of Economics, University of Utrecht)

  • Sherrill Shaffer

    (University of Wyoming and Centre for Applied Macroeconomic Analysis, Australian National University)

  • Laura Spierdijk

    (University of Groningen)

Abstract

The Panzar-Rosse test has been widely applied to assess competitive conduct, often in specifications controlling for firm scale or using a price equation. We show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct. Moreover, even an unscaled revenue function generally requires additional information about costs and market equilibrium to infer the degree of competition. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample containing more than 100,000 bank-year observations on more than 17,000 banks in 63 countries during the years 1994 to 2004. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 4 (November)
Pages: 1025-1044

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Handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:1025-1044

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Keywords: Panzar-Rosse test; competition; scale;

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Citations

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Cited by:
  1. Olivero, María Pía & Li, Yuan & Jeon, Bang Nam, 2011. "Competition in banking and the lending channel: Evidence from bank-level data in Asia and Latin America," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 560-571, March.
  2. Coccorese, Paolo & Pellecchia, Alfonso, 2013. "Multimarket contact, competition and pricing in banking," Journal of International Money and Finance, Elsevier, Elsevier, vol. 37(C), pages 187-214.
  3. Zhao, Tianshu & Matthews, Kent & Murinde, Victor, 2013. "Cross-selling, switching costs and imperfect competition in British banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(12), pages 5452-5462.
  4. Jeon, Bang Nam & Olivero, María Pía & Wu, Ji, 2011. "Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(4), pages 856-875, April.
  5. Olszak, Małgorzata & Świtała, Filip & Kowalska, Iwona, 2013. "Competition in commercial banks in Poland – analysis of Panzar-Rosse H-statistics," MPRA Paper 53782, University Library of Munich, Germany.
  6. Akinci, Dervis Ahmet & Matousek, Roman & Radić, Nemanja & Stewart, Chris, 2013. "Monetary policy and the banking sector in Turkey," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 27(C), pages 269-285.
  7. Stavarek, Daniel & Repkova, Iveta, 2011. "Estimation of the competitive conditions in the Czech banking sector," MPRA Paper 30720, University Library of Munich, Germany.
  8. Tabacco, Giovanni Alberto, 2013. "A new way to assess banking competition," Economics Letters, Elsevier, Elsevier, vol. 121(2), pages 167-169.
  9. Fosu, Samuel, 2013. "Banking competition in Africa: Subregional comparative studies," Emerging Markets Review, Elsevier, Elsevier, vol. 15(C), pages 233-254.
  10. Manthos D. Delis & Sotirios Kokas & Steven Ongena, 2014. "Foreign ownership and market power in banking: Evidence from a world sample," University of Cyprus Working Papers in Economics, University of Cyprus Department of Economics 03-2014, University of Cyprus Department of Economics.
  11. Horvath, Roman & Seidler, Jakub & Weill, Laurent, 2013. "How bank competition influence liquidity creation," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 16/2013, Bank of Finland, Institute for Economies in Transition.
  12. Iveta Repková & Daniel Stavárek, 2014. "Concentration and Competition in the Banking Sector of Turkey," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, Academy of Economic Studies - Bucharest, Romania, vol. 16(36), pages 625, May.
  13. Fungácová, Zuzana & Solanko, Laura & Weill, Laurent, 2013. "Does bank competition influence the lending channel in the euro area?," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 17/2013, Bank of Finland, Institute for Economies in Transition.
  14. Bing Xu & Adrian van Rixtel & Michiel van Leuvensteijn, 2014. "Measuring bank competition in China: A comparison of new versus conventional approaches applied to loan markets," Banco de Espa�a Working Papers, Banco de Espa�a 1404, Banco de Espa�a.
  15. Nicole Jonker, 2011. "Card acceptance and surcharging: the role of costs and competition," DNB Working Papers, Netherlands Central Bank, Research Department 300, Netherlands Central Bank, Research Department.
  16. Brissimis, Sophocles & Delis, Mannthos & Iosifidi, Maria, 2012. "Bank market power and monetary policy transmission," MPRA Paper 49206, University Library of Munich, Germany.
  17. Yu Sun, 2011. "Recent Developments in European Bank Competition," IMF Working Papers, International Monetary Fund 11/146, International Monetary Fund.

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