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Competitive Conditions In Banking Industry: An Empirical Analysis of the Consolidation, Competition and Concentration in the Indonesia Banking Industry Between 2001 and 2009

Author

Listed:
  • Tri Mulyaningsih

    (University of Canberra)

  • Anne Daly

    (University of Canberra)

Abstract

Few large banks dominate the Indonesia banking industry. Furthermore, in the past ten years, there were a series of mergers and acquisitions in the banking market. The facts cause implications on competition. In this paper, we examine these issues exploiting an unconsolidated annual financial report of all commercial banks between 2001 and 2009. The Panzar-Rose method is employed to examine the banks behavior in competition. Estimates indicate that banks in all three subsamples, large; medium-sized and small are working in a monopolistically competitive market. The analysis of market concentration supports the conventional view that concentration impairs competition. The study shows that the most competitive market was the medium-sized banks because it was least concentrated. In contrast, the large market was more concentrated thus it was less competitive. The consolidation policies driven by the Central Bank reduced market concentration because mergers and acquisitions were mostly conducted by the medium sized and small banks. Further the improvement of market share distribution and the increasing capacity of the merging banks enhanced competition in the Indonesia banking industry.

Suggested Citation

  • Tri Mulyaningsih & Anne Daly, 2011. "Competitive Conditions In Banking Industry: An Empirical Analysis of the Consolidation, Competition and Concentration in the Indonesia Banking Industry Between 2001 and 2009," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 14(2), pages 141-175, October.
    • Handle: RePEc:idn:journl:v:14:y:2011:i:2g:p:141-175
    DOI: https://doi.org/10.21098/bemp.v14i2.83
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    References listed on IDEAS

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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