Competition and Concentration in the EU Banking Industry
This paper presents empirical evidence on the competitive structure in the banking industry in the EU as a whole as well as in individual EU countries. The study is based on a non-structural estimation technique to evaluate the elasticity of total interest revenues with respect to changes in banks' input prices. The significant positive values of the competitiveness measure indicate that banks do not exhibit monopoly behaviour in any of the EU countries. Rather, European banking sectors operate under conditions of monopolistic competition, albeit to varying degrees. The results also support the conventional view that concentration impairs competitiveness. Finally, we demonstrate that our findings cast some doubt on the generally perceived effects of EMU on European banking in the medium to long run.
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