A Frontier Measure of U.S. Banking Competition
AbstractThe three main measures of competition (HHI, Lerner Index, and H-Statistic) are uncorrelated for U.S. banks. We investigate why this occurs, propose a frontier measure of competition, and apply it to five major bank service lines using data only available since 2008. Fee-based banking services comprise 35% of bank revenues so assessing competition by service line is preferred to using a single measure for traditional activities extended to the entire bank. Academic-based competition measures explain only 1% of HHI variation. HHI merger/acquisition guidelines could be raised since current banking concentration seems unrelated to competition.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 359.
Date of creation: Dec 2012
Date of revision:
Competition; banks; frontier analysis;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-15 (All new papers)
- NEP-BAN-2012-12-15 (Banking)
- NEP-COM-2012-12-15 (Industrial Competition)
- NEP-CSE-2012-12-15 (Economics of Strategic Management)
- NEP-EFF-2012-12-15 (Efficiency & Productivity)
- NEP-HME-2012-12-15 (Heterodox Microeconomics)
- NEP-IND-2012-12-15 (Industrial Organization)
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