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Competition in fragmented markets: New evidence from the German banking industry in the light of the subprime crisis


  • Moch, Nils


Of all of the EU member states, Germany has the largest banking market. However, not all German banking institutions necessarily face fierce competition. Because the industry is highly fragmented, strict separation of the three existing banking pillars may impede competition, with negative effects on financial stability. We assess the competitive stances of 1,888 universal banks from 2001 to 2009 by using the Panzar–Rosse revenue test. We find evidence that measuring competition at an average country level does not necessarily generate valid evaluations of fragmented markets. In addition, we find no clear indication that either the particular objectives of cooperative and savings banks or the legal protection of these institutions impedes competition or discriminates against private banks. Therefore, as long as the relationship between competition and financial stability is dubious, the overall effect and the social costs or benefits of political measures that influence the structure of the German banking market are at least questionable.

Suggested Citation

  • Moch, Nils, 2013. "Competition in fragmented markets: New evidence from the German banking industry in the light of the subprime crisis," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2908-2919.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:8:p:2908-2919 DOI: 10.1016/j.jbankfin.2013.04.029

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    Cited by:

    1. Shaffer, Sherrill & Spierdijk, Laura, 2015. "The Panzar–Rosse revenue test and market power in banking," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 340-347.
    2. Shijaku, Gerti, 2016. "Does concentration matter for bank stability - evidence from Albanian Banking System," MPRA Paper 79086, University Library of Munich, Germany.

    More about this item


    Competition; Banking industry; Panzar–Rosse; Financial stability; Too-big-to-fail;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms


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