Assessing competition in the banking industry: A multi-product approach
AbstractThis paper investigates the competitive aspects of multi-product banking operations.Extending Panzar and Rosse (1987)’s model to the case of a multi-product bankingfirm, we show that the higher the economies of scope in multi-product banking are,the lower Panzar-Rosse’s measure of competition in the banking sector is. To test thisempirical implication and determine the impact of multi-production/conglomeration onmarket power, we use a new dataset on Brazilian banking conglomerates. Consistentwith our theoretical prediction, we find that banks offering classic banking products (i.e.,loans and credit cards) and other banking products (i.e., brokerage services, insuranceand capitalization bonds) have substantially higher market power than banks that offeronly classic products. These results suggest a positive bias in the traditional estimatesof competition in which multi-output actions are not considered.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 339.
Date of creation: 06 Dec 2013
Date of revision:
Contact details of provider:
Postal: Rua Itapeva, 474, 13o andar, CEP 01332-000, São Paulo - SP
Phone: 55 (011) 3799-3350
Fax: 55 (011) 3799-3357
Web page: http://eesp.fgv.br
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
- NEP-CBA-2013-12-29 (Central Banking)
- NEP-COM-2013-12-29 (Industrial Competition)
- NEP-IND-2013-12-29 (Industrial Organization)
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.:
- Bresnahan, Timothy F & Reiss, Peter C, 1991.
"Entry and Competition in Concentrated Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 99(5), pages 977-1009, October.
- Milbourn, Todd T. & Boot, Arnoud W. A. & Thakor, Anjan V., 1999. "Megamergers and expanded scope: Theories of bank size and activity diversity," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 195-214, February.
- Nakane, Marcio I. & Weintraub, Daniela B., 2005. "Bank privatization and productivity : evidence for Brazil," Policy Research Working Paper Series 3666, The World Bank.
- 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.
- Paulo de Melo Jorge Neto & Luiz Alberto D´Ávila de Araújo & David Agustín Salazar Ponce, 2005.
"Competição E Concentração Entre Os Bancos Brasileiros,"
Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting]
084, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Luiz Alberto D’Ávila de Araújo & Paulo de Melo Jorge Neto & David Agustín Salazar Ponce, 2006. "Competição e Concentração entre os Bancos Brasileiros," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 7(3), pages 561-586.
- Berg, Sigbjorn Atle & Kim, Moshe, 1998.
"Banks as Multioutput Oligopolies: An Empirical Evaluation of the Retail and Corporate Banking Markets,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 30(2), pages 135-53, May.
- Sigbjorn Atle Berg & Moshe Kim, 1996. "Banks as multioutput oligopolies: an empirical evaluation of the retail and corporate banking markets," Proceedings 503, Federal Reserve Bank of Chicago.
- Nakane, Marcio I. & Weintraub, Daniela B., 2005. "Bank privatization and productivity: Evidence for Brazil," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2259-2289, August.
- Ana Carla A. Costa & Joao M.P. De Mello, 2006.
"Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans,"
NBER Working Papers
12252, National Bureau of Economic Research, Inc.
- Ana Carla A. Costa & João M. P. De Mello, 2008. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 155-184 National Bureau of Economic Research, Inc.
- Coccorese, Paolo, 2009. "Market power in local banking monopolies," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1196-1210, July.
- Allen N. Berger & Asli Demirgüç-Kunt & Ross Levine & Joseph G. Haubrich, 2004. "Introduction: Bank concentration and competition: an evolution in the making," Proceedings, Federal Reserve Bank of Cleveland, pages 433-451.
- Murray, John D & White, Robert W, 1983. " Economies of Scale and Economies of Scope in Multiproduct Financial Institutions: A Study of British Columbia Credit Unions," Journal of Finance, American Finance Association, vol. 38(3), pages 887-902, June.
- Nicola Cetorelli, 1999. "Competitive analysis in banking: appraisal of the methodologies," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 2-15.
- Baer, Werner & Nazmi, Nader, 2000. "Privatization and restructuring of banks in Brazil," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(1), pages 3-24.
- Astrid A. Dick, 2002. "Demand estimation and consumer welfare in the banking industry," Finance and Economics Discussion Series 2002-58, Board of Governors of the Federal Reserve System (U.S.).
- Berger, Allen N, et al, 2004. "Bank Concentration and Competition: An Evolution in the Making," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 433-51, June.
- Allen, Linda & Rai, Anoop, 1996. "Operational efficiency in banking: An international comparison," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 655-672, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Núcleo de Computação da EPGE).
If references are entirely missing, you can add them using this form.