Operationalizing and Measuring Competition: Determinants of Competition in Private Banking Industry in India
AbstractUsing an appropriate theoretical framework and econometric methodology, the study has sought to measure and model competition in private banking industry in India in an attempt to analyse the process of market dynamics in the industry. The changing scenario of private banking consequent to deregulation provided the motivation behind the study. It used the concept of competition proposed by Stigler (1961) and measured it by Bodenhorn’s (1990) measure of mobility. The study provides a critique of the mechanism of inducing competition, which is implicit in the Narasimham Committee (1991). It then provides the theoretical background of an alternative mechanism based on Structure-Conduct-Performance paradigm, which incorporates basic conditions and strategic groups, apart from including entry, economies of scale, product differentiation and price cost margin, One basic contention of the study is that competition goes beyond “conduct” and encompasses all the four components of S-C-P paradigm: basic conditions, structure, conduct and performance. Accordingly, a three equation simultaneous equation model is used to ultimately estimate the equation of competition through Tobit technique. The result demonstrates that variables related to basic conditions, structure, and conduct and performance influence competition. The study has found evidence against the simplistic relationship between concentration and competition, which remained implicit in the literature. The study also developed a methodology to arrive at market form from an analysis of three aspects of a market and concludes that private banking industry in India is characterized by monopolistic competition.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 7463.
Date of creation: Jan 2008
Date of revision:
Competition; Structure-Conduct-Performance; Banking reform; Tobit model;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-08 (All new papers)
- NEP-BAN-2008-03-08 (Banking)
- NEP-COM-2008-03-08 (Industrial Competition)
- NEP-CSE-2008-03-08 (Economics of Strategic Management)
- NEP-MIC-2008-03-08 (Microeconomics)
- NEP-TID-2008-03-08 (Technology & Industrial Dynamics)
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