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Competition in banking: A disequilibrium approach

  • Goddard, John
  • Wilson, John O.S.

The Rosse-Panzar revenue test for competitive conditions in banking is based on observation of the impact on bank revenue of variation in factor input prices. We identify the implications for the H-statistic of misspecification bias in the revenue equation, arising when adjustment towards market equilibrium is partial and not instantaneous. In simulations, fixed effects estimation produces a measured H-statistic that is severely biased towards zero. Empirical results for the banking sectors of the Group of Seven (G7) countries corroborate our principal finding, that a dynamic formulation of the revenue equation is required for accurate identification of the H-statistic.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 12 (December)
Pages: 2282-2292

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:12:p:2282-2292
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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