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Theoretical Framework Of Competition As Applied To Banking Industry

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Author Info
KV, Bhanu Murthy
Deb, Ashis Taru
Abstract

Concepts evolve through time and over time they assume different meanings. The concept of competition is no exception. This paper discusses the evolution of the concept of competition in general with a view to derive a theoretical framework for analyzing competition in banking industry. Starting from the classical notions of competition it proceeds to some of the latest approaches (Northcott (2004), Neuberger (1998), Toolsema (2003), Bolt and Tieman (2001)). The ordinary Structure-Conduct-Performance approach does not involve any analysis of market dynamics. Our approach introduces various aspects of industry dynamics and growth. It provides a methodology to arrive at the market form in banking industry through an analysis of all the aspects of basic conditions, structure, conduct and performance. It is argued that sustained growth and dynamics of the industry is not price led. Growth arises out of changing basic conditions and dynamics arises out of sharing the new market created by basic conditions. Hence the prime mover of competition is rivalry among firms to control market share and to internalize externalities rather than adjustments brought about by the price mechanism.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7465.

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Date of creation: Jan 2008
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Handle: RePEc:pra:mprapa:7465

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Related research
Keywords: Structure-Conduct-Performance Competition theory Banking competition Basic Conditions Entry facilitator.

Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
B19 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Other
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
B29 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Other
D49 - Microeconomics - - Market Structure and Pricing - - - Other

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  1. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Working Papers 04-24, Bank of Canada. [Downloadable!]
  2. E. Gerald Corrigan, 1982. "Are banks special?," Annual Report, Federal Reserve Bank of Minneapolis.
  3. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February. [Downloadable!] (restricted)
  4. Amel, Dean F & Rhoades, Stephen A, 1988. "Strategic Groups in Banking," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 685-89, November. [Downloadable!] (restricted)
  5. Vickers, John, 1995. "Concepts of Competition," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 1-23, January. [Downloadable!] (restricted)
  6. Timothy H. Hannan, 1989. "Foundations of the structure-conduct-performance paradigm," Finance and Economics Discussion Series 83, Board of Governors of the Federal Reserve System (U.S.).
  7. Heggestad, Arnold A & Rhoades, Stephen A, 1976. "Concentration and Firm Stability in Commercial Banking," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 443-52, November. [Downloadable!] (restricted)
  8. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November. [Downloadable!] (restricted)
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  9. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August. [Downloadable!] (restricted)
    Other versions:
  10. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June. [Downloadable!] (restricted)
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  12. Benston, George J & Smith, Clifford W, Jr, 1976. "A Transactions Cost Approach to the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 31(2), pages 215-31, May. [Downloadable!] (restricted)
  13. Lester G. Telser, 1964. "Advertising and Competition," Journal of Political Economy, University of Chicago Press, vol. 72, pages 537. [Downloadable!] (restricted)
  14. Shaffer, Sherrill, 1993. "A Test of Competition in Canadian Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 49-61, February. [Downloadable!] (restricted)
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  15. Saving, Thomas R, 1970. "Concentration Ratios and the Degree of Monopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(1), pages 139-46, February. [Downloadable!] (restricted)
  16. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542. [Downloadable!]
  17. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213. [Downloadable!] (restricted)
  18. 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. [Downloadable!] (restricted)
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  19. József Molnár & Márton Nagy & Csilla Horváth, 2007. "A Structural Empirical Analysis of Retail Banking Competition: the Case of Hungary," MNB Working Papers 2007/1, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  20. Doris Neuberger, 1997. "Structure, Conduct and Performance in Banking Markets," Thuenen-Series of Applied Economic Theory 12, University of Rostock, Institute of Economics, Germany. [Downloadable!]
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