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Competition and Concentration in the EU Banking Industry

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  • J.A. Bikker
  • J.M. Groeneveld

Abstract

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.

Suggested Citation

  • J.A. Bikker & J.M. Groeneveld, 1998. "Competition and Concentration in the EU Banking Industry," Research Series Supervision (discontinued) 8, Netherlands Central Bank, Directorate Supervision.
  • Handle: RePEc:dnb:ressup:8
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    File URL: https://www.dnb.nl/en/binaries/ot008_tcm47-146043.pdf
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    References listed on IDEAS

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    1. Molyneux, Phil & Lloyd-Williams, D. M. & Thornton, John, 1994. "Competitive conditions in european banking," Journal of Banking & Finance, Elsevier, vol. 18(3), pages 445-459, May.
    2. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-456, June.
    3. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    4. Molyneux, Philip & Thornton, John & Michael Llyod-Williams, D., 1996. "Competition and market contestability in Japanese commercial banking," Journal of Economics and Business, Elsevier, vol. 48(1), pages 33-45, February.
    5. Baumol, William J, 1977. "On the Proper Cost Tests for Natural Monopoly in a Multiproduct Industry," American Economic Review, American Economic Association, vol. 67(5), pages 809-822, December.
    6. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
    7. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April.
    8. Gual, Jordi & Neven, Damien J, 1992. "Deregulation of the European Banking Industry (1980-1991)," CEPR Discussion Papers 703, C.E.P.R. Discussion Papers.
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