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Testing for competition in the Spanish banking industry: The Panzar-Rosse approach revisited

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  • Luis Gutiérrez de Rozas

    ()
    (Comisión Nacional de Energía (CNE))

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    Abstract

    The 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 Info

    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0726.

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    Length: 45 pages
    Date of creation: Aug 2007
    Date of revision:
    Handle: RePEc:bde:wpaper:0726

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    Keywords: banking; competition; Panzar-Rosse; market structure;

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    Cited by:
    1. Sys, Christa, 2009. "Is the container liner shipping industry an oligopoly?," Transport Policy, Elsevier, vol. 16(5), pages 259-270, September.
    2. Amidu, Mohammed & Wolfe, Simon, 2013. "The effect of banking market structure on the lending channel: Evidence from emerging markets," Review of Financial Economics, Elsevier, Elsevier, vol. 22(4), pages 146-157.
    3. Stavarek, Daniel & Repkova, Iveta, 2011. "Estimation of the competitive conditions in the Czech banking sector," MPRA Paper 30720, University Library of Munich, Germany.
    4. Moch, Nils, 2013. "Competition in fragmented markets: New evidence from the German banking industry in the light of the subprime crisis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(8), pages 2908-2919.

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