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Competition, concentration and their relationship: an empirical analysis of the banking industry

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  • J.A. Bikker
  • K. Haaf

Abstract

This paper examines competitive conditions and market structure in the banking industry, and investigates their interrelationship. Competition is measured using the non-structural Panzar-Rosse model, which assesses the elasticities of interest revenues with respect to changes in banks' input prices. In order to distinguish competitive behaviour on local, national and international markets, for each country, three subsamples are taken: small or local banks, medium-sized banks and large or international banks. For all 23 countries considered, estimations indicate monopolistic competition. Competition appears to be weaker in local markets and stronger in international markets. Subsequently, a relationship for the impact of the market structure on competition is derived and tested empirically, providing support for the conventional view that concentration impairs competitiveness.

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File URL: http://www.dnb.nl/en/binaries/ot030_tcm47-146046.pdf
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Paper provided by Netherlands Central Bank, Directorate Supervision in its series Research Series Supervision (discontinued) with number 30.

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Date of creation: Sep 2000
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Handle: RePEc:dnb:ressup:30
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  19. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December.
  20. J.A. Bikker & K. Haaf, 2001. "Competition, Concentration and their Relationship: an EmpiricalAnalysis of the Banking Industry," DNB Staff Reports (discontinued) 68, Netherlands Central Bank.
  21. Bertrand Rime, 1999. "Mesure du degré de concurrence dans le système bancaire suisse à l'aide du modèle de Panzar et Rosse," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 135(I), pages 21-40, March.
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  24. John C. Hause, 1977. "The Measurement of Concentrated Industrial Structure and the Size Distribution of Firms," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 73-107 National Bureau of Economic Research, Inc.
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