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

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Author Info
Luis Gutiérrez de Rozas () (Comisión Nacional de Energía (CNE))
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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File URL: http://www.bde.es/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/07/Fic/dt0726e.pdf
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Publisher Info
Paper provided by Banco de España in its series Banco de España Working Papers with number 0726.

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

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

Other versions of this item:

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository 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

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