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Testing for imperfect competition on EU deposit and loan markets with Bresnahan's market power model

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J.A. Bikker

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Abstract

Bresnahan and Lau developed a model of profit maximising oligopoly banks in order to determine the degree of market power of the average bank. The equilibrium price equation includes a mark up, which is not used at all under perfect competition, partly used under oligopoly or monopolistic competition and fully used under monopoly. The data requirements of the model allow testing of possible use of market power for submarkets. This article investigates the degree of competition on both the deposit and loan markets in nine EU countries, both apart and jointly. The hypothesis of perfect competition can be rejected for the deposit market of the ‘entire’ EU, for the deposit markets of Germany and Spain and for the lending markets of Germany, Portugal, Spain, Sweden and the UK. Nevertheless, these markets are characterised as highly competitive, because the use or abuse of market power is very limited.

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Paper provided by Netherlands Central Bank, Directorate Supervision in its series Research Series Supervision (discontinued) with number 52.

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Date of creation: Feb 2003
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Handle: RePEc:dnb:ressup:52

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Suominen, Matti, 1994. " Measuring Competition in Banking: A Two-Product Model," Scandinavian Journal of Economics, Blackwell Publishing, vol. 96(1), pages 95-110.
  2. John C. Hause, 1977. "The Measurement of Concentrated Industrial Structure and the Size Distribution of Firms," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 82-116 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Shaffer, Sherrill, 1989. "Competition in the U.S. banking industry," Economics Letters, Elsevier, vol. 29(4), pages 321-323. [Downloadable!] (restricted)
  4. J.A. Bikker & J.M. Groeneveld, 1998. "Competition and Concentration in the EU Banking Industry," Research Series Supervision (discontinued) 8, Netherlands Central Bank, Directorate Supervision. [Downloadable!]
  5. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92. [Downloadable!] (restricted)
  6. Steen, Frode & Salvanes, Kjell G., 1999. "Testing for market power using a dynamic oligopoly model," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 147-177, February. [Downloadable!] (restricted)
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  7. David Genesove & Wallace P. Mullin, 1998. "Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 355-377, Summer. [Downloadable!] (restricted)
  8. Alexander, Donald L., 1988. "The oligopoly solution tested," Economics Letters, Elsevier, vol. 28(4), pages 361-364. [Downloadable!] (restricted)
  9. Toolsema, Linda A., 2002. "Competition in the Dutch consumer credit market," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2215-2229, November. [Downloadable!] (restricted)
  10. Lau, Lawrence J., 1982. "On identifying the degree of competitiveness from industry price and output data," Economics Letters, Elsevier, vol. 10(1-2), pages 93-99. [Downloadable!] (restricted)
  11. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-66, September. [Downloadable!] (restricted)
  12. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier. [Downloadable!] (restricted)
  13. J.A. Bikker & K. Haaf, 2000. "Measures of competition and concentration in the banking industry: a review of the literature," Research Series Supervision (discontinued) 27, Netherlands Central Bank, Directorate Supervision. [Downloadable!]
  14. Shaffer, Sherrill, 1993. "A Test of Competition in Canadian Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 49-61, February. [Downloadable!] (restricted)
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  15. Graddy, K., 1993. "Testing for Imperfect Competition at the Fulton Fish Market," Papers 137, Princeton, Department of Economics - Financial Research Center.
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  16. J.A. Bikker & K. Haaf, 2000. "Competition, concentration and their relationship: an empirical analysis of the banking industry," Research Series Supervision (discontinued) 30, Netherlands Central Bank, Directorate Supervision. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Enrique Benito, 2008. "Size, growth and bank dynamics," Banco de España Working Papers 0801, Banco de España. [Downloadable!]
  2. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian van Rixtel, 2008. "Impact of bank competition on the interest rate pass-through in the euro area," Banco de España Working Papers 0828, Banco de España. [Downloadable!]
    Other versions:
  3. Jacob Bikker & Jaap Bos, 2004. "Trends in Competition and Profitability in the Banking Industry: A Basic Framework," DNB Working Papers 018, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  4. Shrimal Perera & Michael Skully & J. Wickramanayake, 2006. "Competition and structure of South Asian banking: a revenue behaviour approach," Applied Financial Economics, Taylor and Francis Journals, vol. 16(11), pages 789-801, July. [Downloadable!] (restricted)
  5. Michiel van Leuvensteijn & Jacob Bikker & Adrian van Rixtel & Christoffer Kok-Sorensen, 2007. "A new approach to measuring competition in the loan markets of the euro area," DNB Working Papers 143, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  6. Horst Gischer & Mike Stiele, 2004. "Testing for Banking Competition in Germany: Evidence from Savings Banks," Money Macro and Finance (MMF) Research Group Conference 2004 35, Money Macro and Finance Research Group. [Downloadable!]
  7. Elmer Sterken, 2006. "Competition in the Dutch Mortgage Market," De Economist, Springer, vol. 154(4), pages 587-600, December. [Downloadable!] (restricted)
  8. Leo de Haan & Elmer Sterken, 2006. "Price Leadership in the Dutch Mortgage Market," DNB Working Papers 102, Netherlands Central Bank, Research Department. [Downloadable!]
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