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Competition and Innovation: Evidence from Financial Services

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Author Info
Jaap W.B. Bos ()
Ryan C.R. van Lamoen ()
James W. Kolari ()

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Abstract

In this paper we seek to contribute to the literature on competition and innovation by focusing on individual firms within the U.S. banking industry in the period 1984-2004. We measure innovation by estimating technology gaps and find evidence of an inverted-U relationship between competition and the technology gaps in banking. This finding is robust over several different specifications and is consistent with theoretical and empirical work by Aghion, Bloom, Blundell, Griffith, and Howitt (2005b). The optimal amount of innovation requires a slightly positive mark up. Also, we find that the U.S. banking industry as a whole has consolidated beyond this optimal innovation level and that state-level interstate banking deregulation has lowered innovation.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 09-16.

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Length: 26 pages
Date of creation: Jun 2009
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Handle: RePEc:use:tkiwps:0916

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Related research
Keywords: competition; innovation; stochastic frontier analysis; technology gap ratio; banking;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General

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