Testing for competition in the Spanish banking industry: The Panzar-Rosse approach revisited
AbstractThe aim of this paper is to assess the level of competition prevailing in the Spanish banking system. The current analysis employs a widely used non-structural methodology put forward by Panzar and Rosse (1987) —the so-called H-statistic— and draws upon a comprehensive panel dataset of Spanish commercial and savings banks covering the period 1986-2005. Standard estimates characterize a hump-shaped profile for the H-statistic throughout the time span under consideration. Nevertheless, a weighted procedure is subsequently performed in order to control for firm size and the number of branches. The estimation outcome reveals a gradual rising path for the H-statistic, thus suggesting a more competitive environment among larger banks. In both settings, a noteworthy increase in the degree of competition is identified at the turn of the eighties, when several liberalization-oriented policy measures came into force. The aforementioned findings discredit the widespread hypothesis which states that concentration impairs competition.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0726.
Length: 45 pages
Date of creation: Aug 2007
Date of revision:
banking; competition; Panzar-Rosse; market structure;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-14 (All new papers)
- NEP-BAN-2007-08-14 (Banking)
- NEP-COM-2007-08-14 (Industrial Competition)
- NEP-EEC-2007-08-14 (European Economics)
- NEP-MIC-2007-08-14 (Microeconomics)
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