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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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  • Carbo Valverde, Santiago
  • Fernández de Guevara y Rodoselovics, Juan
  • Humphrey, David
  • Maudos Villarroya, Joaquín

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. (97 words)

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15259.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:15259

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

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References

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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  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. 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.
  8. 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.
  9. 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.
  10. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, November.
  11. Lucio Fuentelsaz, 1996. "Dinámica de la competencia entre cajas de ahorros españolas," Investigaciones Economicas, Fundación SEPI, vol. 20(1), pages 125-141, January.
  12. 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.
  13. 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.
  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 Fernandez de Guevara & Joaquin Maudos, 2009. "Regional Financial Development and Bank Competition: Effects on Firms' Growth," Regional Studies, Taylor and Francis Journals, vol. 43(2), pages 211-228.
  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. 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.
  5. 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.
  6. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Banco de España Working Papers 0539, Banco de España.
  7. 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).

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