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

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  • Jacob Bikker
  • Sherrill Shaffer
  • Laura Spierdijk

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. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample covering more than 110,000 bank-year observations on almost 18,000 banks in 67 countries during 1986-2004.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 225.

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Date of creation: Nov 2009
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Handle: RePEc:dnb:dnbwpp:225

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Keywords: Panzar-Rosse test; competition; firm size;

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Citations

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Cited by:
  1. Stavarek, Daniel & Repkova, Iveta, 2011. "Estimation of the competitive conditions in the Czech banking sector," MPRA Paper 30720, University Library of Munich, Germany.
  2. Yu Sun, 2011. "Recent Developments in European Bank Competition," IMF Working Papers 11/146, International Monetary Fund.
  3. Brissimis, Sophocles & Delis, Mannthos & Iosifidi, Maria, 2012. "Bank market power and monetary policy transmission," MPRA Paper 49206, University Library of Munich, Germany.
  4. Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.
  5. Tabacco, Giovanni Alberto, 2013. "A new way to assess banking competition," Economics Letters, Elsevier, vol. 121(2), pages 167-169.
  6. Manthos D. Delis & Sotirios Kokas, 2014. "Foreign ownership and market power in banking: Evidence from a world sample," University of Cyprus Working Papers in Economics 03-2014, University of Cyprus Department of Economics.
  7. 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.
  8. Fosu, Samuel, 2013. "Banking competition in Africa: Subregional comparative studies," Emerging Markets Review, Elsevier, vol. 15(C), pages 233-254.
  9. 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, vol. 27(C), pages 269-285.
  10. Zhao, Tianshu & Matthews, Kent & Murinde, Victor, 2013. "Cross-selling, switching costs and imperfect competition in British banks," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5452-5462.
  11. 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, vol. 35(4), pages 856-875, April.
  12. Fungácová, Zuzana & Solanko, Laura & Weill, Laurent, 2013. "Does bank competition influence the lending channel in the euro area?," BOFIT Discussion Papers 17/2013, Bank of Finland, Institute for Economies in Transition.
  13. Jonker Nicole, 2011. "Card Acceptance and Surcharging: the Role of Costs and Competition," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-35, June.
  14. Horvath, Roman & Seidler, Jakub & Weill, Laurent, 2013. "How bank competition influence liquidity creation," BOFIT Discussion Papers 16/2013, Bank of Finland, Institute for Economies in Transition.
  15. Coccorese, Paolo & Pellecchia, Alfonso, 2013. "Multimarket contact, competition and pricing in banking," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 187-214.

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