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The Panzar–Rosse revenue test and market power in banking

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  • Shaffer, Sherrill
  • Spierdijk, Laura

Abstract

The Panzar–Rosse H statistic is a commonly used measure of market power in banking. It is widely believed that H>0 is inconsistent with significant market power. This study rigorously disproves that perception. Instead, the possibility of H>0 under conditions of substantial market power turns out robust to the timing of banks’ actions, relative costs, choice of strategic variable, degree of product differentiation, strategy (static or dynamic), and degree of heterogeneity in banks’ conduct (collusive versus fringe), and hence may be common in practice.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jbfina:v:61:y:2015:i:c:p:340-347
    DOI: 10.1016/j.jbankfin.2015.09.019
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:riibaf:v:41:y:2017:i:c:p:125-135 is not listed on IDEAS
    2. Matousek, Roman & Nguyen, Thao Ngoc & Chris, Stewart, 2016. "Performance of the banking sector of a developing country: A non-structural model using the disequilibrium approach," Economics Discussion Papers 2016-2, School of Economics, Kingston University London.
    3. Iryna Okolelova & J.A. Bikker, 2019. "The Single Supervisory Mechanism : competitive implications for the banking sectors in the euro area," Working Papers 19-01, Utrecht School of Economics.
    4. Li, Shaofang & Marinč, Matej, 2016. "Competition in the clearing and settlement industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 134-162.
    5. repec:ejn:ejefjr:v:6:y:2018:i:1:p:64-83 is not listed on IDEAS
    6. repec:eee:riibaf:v:47:y:2019:i:c:p:410-427 is not listed on IDEAS
    7. E Philip Davis & Dilruba Karim & Dennison Noel, 2019. "Bank Leverage Ratios, Risk and Competition - An Investigation Using Individual Bank Data," National Institute of Economic and Social Research (NIESR) Discussion Papers 499, National Institute of Economic and Social Research.
    8. Iryna Okolelova & Jacob Bikker, 2018. "The Single Supervisory Mechanism: competitive implications for the banking sectors in the euro area," DNB Working Papers 621, Netherlands Central Bank, Research Department.
    9. repec:eee:riibaf:v:41:y:2017:i:c:p:412-422 is not listed on IDEAS

    More about this item

    Keywords

    Banking competition; Panzar–Rosse method; Banking oligopoly;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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