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Some Tests of Competition in the Australian Housing Loan Market

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  • Jerome Fahrer

    (Reserve Bank of Australia)

  • Thomas Rohling

    (Reserve Bank of Australia)

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    Abstract

    In this paper we investigate the degree of competition in the market for housing loans by examining a new data set, the asset composition of individual banks. We construct a Herfindahl index of concentration in this market, and estimate a model of conjectural variations to examine the reactions of each bank to changes in the value of loans made by other banks. Certain forms of competition are nested within this framework. Our findings lead us to decisively reject the hypotheses of perfect competition and perfect collusion. We are unable to reject the hypothesis that this market can be characterised as a Cournot oligopoly.

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    File URL: http://www.rba.gov.au/publications/rdp/1992/pdf/rdp9202.pdf
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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9202.

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    Date of creation: Feb 1992
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    Handle: RePEc:rba:rbardp:rdp9202

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    1. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-99, May.
    2. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-44, November.
    3. Shaffer, Sherrill, 1989. "Competition in the U.S. banking industry," Economics Letters, Elsevier, vol. 29(4), pages 321-323.
    4. Gollop, Frank M. & Roberts, Mark J., 1979. "Firm interdependence in oligopolistic markets," Journal of Econometrics, Elsevier, vol. 10(3), pages 313-331, August.
    5. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
    6. Alli Nathan & Edwin H. Neave, 1989. "Competition and Contestability in Canada's Financial System: Empirical Results," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 576-94, August.
    7. Sullivan, Daniel, 1985. "Testing Hypotheses about Firm Behavior in the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 586-98, June.
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