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Estimating the intensity of price and non-price competition in banking: an application to the Spanish case

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Author Info

  • Carbó Valverde Santiago

    () (UNIVERSITY OF GRANADA FEDERAL RESERVE BANK OF CHICAGO)

  • Fernández de Guevara Radoselovics Juan

    () (University of Valencia; Ivie)

  • Humphrey David

    () (FLORIDASTATE UNIVERSITY)

  • Maudos Villarroya Joaquín

    () (UNIVERSITY OF VALENCIA THE VALENCIAN INSTITUTE OF ECONOMIC RESEARCH (Ivie))

Abstract

We model bank oligopoly behaviour using price and non-price competition as strategic variables in an expanded conjectural variations framework. Rivals can respond to changes in both loan and deposit market prices as well as (non-price) branch market shares. The model is illustrated using data for Spain which, over 1986-2002, eliminated interest rate and branching restrictions and set off a competitive race to lock in expanded market shares. Banks use both interest rates and branches as strategic variables and both have changed over time. We illustrate the results using a regional vs. a national specification for the relevant markets.

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Bibliographic Info

Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201023.

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Length: 42
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:fbb:wpaper:201023

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Keywords: non-price competition; banking; market shares.;

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References

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  1. Reint Gropp & Sandrine Corvoisier, 2001. "Bank concentration and retail interest rates," Working Paper Series 072, European Central Bank.
  2. Joaquin Maudos, 1998. "Market structure and performance in Spanish banking using a direct measure of efficiency," Applied Financial Economics, Taylor and Francis Journals, vol. 8(2), pages 191-200.
  3. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937.
  4. Valverde, S. Carbo & Humphrey, David B. & Fernandez, F. Rodriguez, 2003. "Bank deregulation is better than mergers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(5), pages 429-449, December.
  5. Maudos, Joaquin & Fernandez de Guevara, Juan, 2003. "Factors Explaining the Interest Margin in the Banking Sectors of the European Union," MPRA Paper 15252, University Library of Munich, Germany.
  6. Lucio Fuentelsaz, 1996. "Dinámica de la competencia entre cajas de ahorros españolas," Investigaciones Economicas, Fundación SEPI, vol. 20(1), pages 125-141, January.
  7. 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.
  8. Barros, Pedro Pita, 1995. "Post-entry expansion in banking: The case of Portugal," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 593-611, December.
  9. Pinho, Paulo Soares de, 2000. "The impact of deregulation on price and non-price competition in the Portuguese deposits market," Journal of Banking & Finance, Elsevier, vol. 24(9), pages 1515-1533, September.
  10. Vittoria Cerasi & Barbara Chizzolini & Marc Ivaldi, 2002. "Branching and competition in the European banking industry," Applied Economics, Taylor and Francis Journals, vol. 34(17), pages 2213-2225.
  11. Kim, Moshe & Vale, Bent, 2001. "Non-price strategic behavior: the case of bank branches," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1583-1602, December.
  12. Lucio Fuentelsaz & Jaime Gomez, 2001. "Strategic and Queue effects on Entry in Spanish Banking," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 529-563, December.
  13. Santiago Carbo Valverdie & David Humphrey & Francisco Rodriguez Fernandez, 2003. "Deregulation, Bank Competition and Regional Growth," Regional Studies, Taylor and Francis Journals, vol. 37(3), pages 227-237.
  14. Coccorese, Paolo, 2005. "Competition in markets with dominant firms: A note on the evidence from the Italian banking industry," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1083-1093, May.
  15. Canhoto, Ana, 2004. "Portuguese banking: A structural model of competition in the deposits market," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 41-63.
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Citations

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Cited by:
  1. Enrique Benito, 2008. "Size, growth and bank dynamics," Banco de España Working Papers 0801, Banco de España.
  2. Juan Ayuso & Jorge Martínez, 2006. "Assessing banking competition: an application to the Spanish market for (quality-changing) deposits," Banco de España Working Papers 0623, Banco de España.
  3. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Banco de España Working Papers 0539, Banco de España.
  4. Fernandez de Guevara, Juan & Maudos, Joaquin, 2009. "Regional Financial Development and Bank Competition: Effects on Firms' Growth," MPRA Paper 15256, University Library of Munich, Germany.
  5. Solís, Liliana & Maudos, Joaquín, 2008. "The social costs of bank market power: Evidence from Mexico," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 467-488, September.
  6. Maudos, Joaquín & Solís, Liliana, 2011. "Deregulation, liberalization and consolidation of the Mexican banking system: Effects on competition," Journal of International Money and Finance, Elsevier, vol. 30(2), pages 337-353, March.
  7. Alin Marius Andrieş & Bogdan Căpraru, 2012. "Competition and efficiency in EU27 banking systems," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(1), pages 41-60, July.

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