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The Competitive Advantage of Incumbents: Evidence from Newly Liberalized Banking Industries

Listed author(s):
  • Valeriya Dinger
  • Jürgen von Hagen

The paper analyzes banking competition in newly liberalized banking industries, where the incumbent banks still dominate the deposit market but are exposed to substantial loan market competition. We argue that incumbent banks, due to their preferential position in the deposit market, are able to generate higher margins than new entrants. Moreover, margins of new entrants are negatively affected by the incumbents' preferential position in the deposit market. The analysis is based on data from 296 banks from ten Central and Eastern European countries for the period 1995-2004.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 167 (2011)
Issue (Month): 4 (December)
Pages: 578-607

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201112)167:4_578:tcaoie_2.0.tx_2-k
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  1. Degryse, H.A. & Ongena, S., 2002. "Distance, Lending Relationships and Competition," Discussion Paper 2002-16, Tilburg University, Center for Economic Research.
  2. Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "Determinants of commercial bank interest margins and profitability : some international evidence," Policy Research Working Paper Series 1900, The World Bank.
  3. Ben R. Craig & Valeriya Dinger, 2008. "Bank mergers and the dynamics of deposit interest rates," Proceedings 1093, Federal Reserve Bank of Chicago.
  4. Tim S. Campbell, 1987. "The valuation cost approach to the theory of financial intermediation," Proceedings 169, Federal Reserve Bank of Chicago.
  5. Dittus, Peter & Prowse, Stephen, 1995. "Corporate control in Central Europe and Russia : should banks own shares?," Policy Research Working Paper Series 1481, The World Bank.
  6. Coccorese, Paolo, 2005. "Competition in markets with dominant firms: A note on the evidence from the Italian banking industry," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1083-1093, May.
  7. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Bank performance, efficiency and ownership in transition countries," BOFIT Discussion Papers 7/2004, Bank of Finland, Institute for Economies in Transition.
  8. Iftekhar Hasan & Anthony Saunders & Viral V. Acharya, 2002. "Should banks be diversified? Evidence from individual bank loan portfolios," BIS Working Papers 118, Bank for International Settlements.
  9. Gara M. Afonso & Anna Kovner & Antoinette Schoar, 2010. "Stressed, not frozen: the Federal Funds market in the financial crisis," Staff Reports 437, Federal Reserve Bank of New York.
  10. Viral V. Acharya & Iftekhar Hasan & Anthony Saunders, 2002. "Should banks be diversified? evidence from individual bank portfolios," Proceedings 836, Federal Reserve Bank of Chicago.
  11. Anderson, Ronald W. & Kegels, Chantal, 1998. "Transition Banking: Financial Development of Central and Eastern Europe," OUP Catalogue, Oxford University Press, number 9780198290131, December.
  12. Ben Craig & Valeriya Dinger, 2009. "Bank Mergers and the Dynamics of Deposit Interest Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 111-133, December.
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