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Competition Among Dominant Firms in Concentrated Markets: Evidence from the Italian Banking Industry

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Abstract

Conventional models of the industrial organisation theory usually state that in concentrated industries firms have significant market power, and that competition can be easily reduced if the leading firms collude. However, recent theoretical analyses show that strong concentration does not necessarily prevent competition among firms. In this paper we consider the Italian banking industry, where the eight largest firms operate at a national level, manage about a half of total loans, and have a notably larger dimension than the other competitors. We estimate a structural model – formed by a demand equation, a cost equation and a price cost margin equation, the latter containing a behavioural parameter – to assess the market conduct of the largest banks for the period 1988-2000. Our finding is that, in spite of their noteworthy size and significant market share, in these years the largest banks have been characterised by a more competitive conduct than the Cournot outcome: this is in line with the results of the latest literature of the field, for which in the banking industry there is often no conflict between competition and concentration.

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  • Paolo Coccorese, 2002. "Competition Among Dominant Firms in Concentrated Markets: Evidence from the Italian Banking Industry," CSEF Working Papers 89, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:89
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    1. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
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    Cited by:

    1. Irina Dezhina, 2006. "An Analysis of Competition in the Russian Banking Sector," Research Paper Series, Gaidar Institute for Economic Policy, issue 96, pages 130-130.
    2. Mr. Johan Mathisen & Thierry D. Buchs, 2005. "Competition and Efficiency in Banking: Behavioral Evidence from Ghana," IMF Working Papers 2005/017, International Monetary Fund.
    3. Mamatzakis, E. & Staikouras, C. & Koutsomanoli-Fillipaki, N., 2005. "Competition and concentration in the banking sector of the South Eastern European region," Emerging Markets Review, Elsevier, vol. 6(2), pages 192-209, June.
    4. Memić Deni, 2015. "Banking Competition and Efficiency: Empirical Analysis on the Bosnia and Herzegovina Using Panzar-Rosse Model," Business Systems Research, Sciendo, vol. 6(1), pages 72-92, March.
    5. Szabolcs Szikszai & Tamás Badics & Csilla Raffai & Zsolt Stenger & András Tóthmihály, 2013. "Studies in Financial Systems No 8 Hungary," FESSUD studies fstudy08, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    6. Lizethe Berenice Méndez-Heras & Francisco Venegas-Martínez & Diego Emilio Linthon-Delgado, 2021. "Competencia en el mercado de crédito entre los bancos dominantes en México," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(TNEA), pages 1-25, Septiembr.
    7. Varelas, Erotokritos, 2014. "Bank Industry Structure and Public Debt," MPRA Paper 58437, University Library of Munich, Germany.
    8. Christos K. Staikouras & Anastasia Koutsomanoli‐Fillipaki, 2006. "Competition and Concentration in the New European Banking Landscape," European Financial Management, European Financial Management Association, vol. 12(3), pages 443-482, June.
    9. Trivieri, Francesco, 2007. "Does cross-ownership affect competition?: Evidence from the Italian banking industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(1), pages 79-101, February.
    10. Erotokritos Varelas, 2015. "Number of Banks, Public Debt, and Workable Competition," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 41-51, February.
    11. 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.

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