Measuring Competition in Banking : A Disequilibrium Approach
The "Rosse-Panzar" revenue test for competitive conditions in banking is based on observation of the impact on bank revenue of variation in factor input prices. We identify the implications for the H-statistics of misspecification bias in the revenue equation arising when adjustment towards market equilibrium is partial and not instantaneous. In simulation, fixed effects estimation produces a measured H-statistic that is severely biased towards zero. Empirical results for the banking sectors of six developed countries corroborate our principal finding, that a dynamic formulation of the revenue equation is required for accurate identification of the H-statistics.
|Date of creation:||2008|
|Date of revision:||Apr 2008|
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- J.A. Bikker & L. Spierdijk & P. Finnie, 2007. "The Impact of Market Structure, Contestability and Institutional Environment on Banking Competition," Working Papers 07-29, Utrecht School of Economics.
- Jacob Bikker & Laura Spierdijk & Paul Finnie, 2006. "Misspecifiation of the Panzar-Rosse Model: Assessing Competition in the Banking Industry," DNB Working Papers 114, Netherlands Central Bank, Research Department.
- Barbara Casu & Claudia Girardone, 2006. "Bank Competition, Concentration And Efficiency In The Single European Market," Manchester School, University of Manchester, vol. 74(4), pages 441-468, 07.
- International Monetary Fund, 2007. "Italyâ€”Assessing Competition and Efficiency in the Banking System," IMF Working Papers 07/26, International Monetary Fund.
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