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Competition Among Dominant Firms in Concentrated Markets: Evidence from the Italian Banking Industry



Conventional models of the industrial organisation theory usually state that in concentrated industries firms have significant market power, and that competition can be easily reduced if the leading firms collude. However, recent theoretical analyses show that strong concentration does not necessarily prevent competition among firms. In this paper we consider the Italian banking industry, where the eight largest firms operate at a national level, manage about a half of total loans, and have a notably larger dimension than the other competitors. We estimate a structural model – formed by a demand equation, a cost equation and a price cost margin equation, the latter containing a behavioural parameter – to assess the market conduct of the largest banks for the period 1988-2000. Our finding is that, in spite of their noteworthy size and significant market share, in these years the largest banks have been characterised by a more competitive conduct than the Cournot outcome: this is in line with the results of the latest literature of the field, for which in the banking industry there is often no conflict between competition and concentration.

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  • Paolo Coccorese, 2002. "Competition Among Dominant Firms in Concentrated Markets: Evidence from the Italian Banking Industry," CSEF Working Papers 89, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:89

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    References listed on IDEAS

    1. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
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    Cited by:

    1. Mamatzakis, E. & Staikouras, C. & Koutsomanoli-Fillipaki, N., 2005. "Competition and concentration in the banking sector of the South Eastern European region," Emerging Markets Review, Elsevier, vol. 6(2), pages 192-209, June.
    2. Varelas, Erotokritos, 2014. "Bank Industry Structure and Public Debt," MPRA Paper 58437, University Library of Munich, Germany.
    3. Szabolcs Szikszai & Tamás Badics & Csilla Raffai & Zsolt Stenger & András Tóthmihály, 2013. "Studies in Financial Systems No 8 Hungary," FESSUD studies fstudy08, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    4. 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.
    5. Trivieri, Francesco, 2007. "Does cross-ownership affect competition?: Evidence from the Italian banking industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(1), pages 79-101, February.
    6. Johan Mathisen & Thierry D. Buchs, 2005. "Competition and Efficiency in Banking; Behavioral Evidence from Ghana," IMF Working Papers 05/17, International Monetary Fund.

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