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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. Santiago Carbo Valverdie & David Humphrey & Francisco Rodriguez Fernandez, 2003. "Deregulation, Bank Competition and Regional Growth," Regional Studies, Taylor & Francis Journals, vol. 37(3), pages 227-237.
  2. 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.
  3. J.A. Bikker & K. Haaf, 2001. "Competition, Concentration and their Relationship: an EmpiricalAnalysis of the Banking Industry," DNB Staff Reports (discontinued) 68, Netherlands Central Bank.
  4. Joaquín Maudos Villarroya, 1996. "Market structure and performance in Spanish banking using a direct measure of efficiency," Working Papers. Serie EC 1996-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
  6. Corvoisier, Sandrine & Gropp, Reint, 2002. "Bank concentration and retail interest rates," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2155-2189, November.
  7. Vittoria Cerasi & Barbara Chizzolini & Marc Ivaldi, 2002. "Branching and competition in the European banking industry," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2213-2225.
  8. 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.
  9. 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.
  10. 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.
  11. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
  12. 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.
  13. Lucio Fuentelsaz, 1996. "Dinámica de la competencia entre cajas de ahorros españolas," Investigaciones Economicas, Fundación SEPI, vol. 20(1), pages 125-141, January.
  14. 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.
  15. 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.
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Citations

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Cited by:
  1. 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.
  2. Liliana Solís & Joaquín Maudos Villarroya, 2007. "Deregulation, Liberalization And Consolidation Of The Mexican Banking System: Effects On Competition," Working Papers. Serie EC 2007-13, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. 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.
  4. Juan Fernandez de Guevara & Joaquin Maudos, 2009. "Regional Financial Development and Bank Competition: Effects on Firms' Growth," Regional Studies, Taylor & Francis Journals, vol. 43(2), pages 211-228.
  5. Juan Ayuso & Jorge Martínez, 2006. "Assessing banking competition: an application to the Spanish market for (quality-changing) deposits," Banco de Espa�a Working Papers 0623, Banco de Espa�a.
  6. Enrique Benito, 2008. "Size, growth and bank dynamics," Banco de Espa�a Working Papers 0801, Banco de Espa�a.
  7. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Banco de Espa�a Working Papers 0539, Banco de Espa�a.

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