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Measuring and explaining competition in the financial sector

  • J.A. Bikker
  • L. Spierdijk

The first part of this paper provides a systematic discussion of the structural problems of competition on financial markets as observed from the demand and from the supply side, using a diagnostic framework. Potential impediments to competition are concentration, entry barriers, lack of transparency, product complexity, switching and search costs, financial illiteracy, lack of consumer power and weak intermediaries. In response to such financial market failures, we suggest a number of possible policy reactions. The second part of the paper investigates ways to measure competition and provides empirical figures on banking competition in 101 separate countries and assesses the market structure as monopolistic (or a perfect cartel), perfectly competitive or monopolistic competitive. Also, banking competition is explained, using explanatory variables of market structure, contestability, inter-industry competition, and institutional and macro economic conditions. This analysis provides possible instruments for reform in order to help promote competition. Next, the impact of banking consolidation is examined. Finally, developments in competition are observed over time, generally pointing to a downward trend.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/309437/09_01.pdf
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Paper provided by Utrecht School of Economics in its series Working Papers with number 09-01.

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Date of creation: Feb 2009
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Handle: RePEc:use:tkiwps:0901
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  1. Fernandez de Guevara, Juan & Maudos, Joaquin & Perez, Francisco, 2007. "Integration and competition in the European financial markets," Journal of International Money and Finance, Elsevier, vol. 26(1), pages 26-45, February.
  2. De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
  3. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Jacob Bikker & Janko Gorter, 2008. "Performance of the Dutch non-life insurance industry: competition, efficiency and focus," DNB Working Papers 164, Netherlands Central Bank, Research Department.
  5. Jacob A. Bikker & Jaap W.B. Bos, 2005. "Trends in Competition and Profitability in the Banking Industry: A Basic Framework," SUERF Studies, SUERF - The European Money and Finance Forum, number 2005/2 edited by Morten Balling, November.
  6. 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.
  7. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," NBER Working Papers 5667, National Bureau of Economic Research, Inc.
  8. Michiel van Leuvensteijn & Jacob Bikker & Adrian van Rixtel & Christoffer Kok Sørensen, 2011. "A new approach to measuring competition in the loan markets of the euro area," Applied Economics, Taylor & Francis Journals, vol. 43(23), pages 3155-3167.
  9. Claessens, Stijn & Laeven, Luc, 2003. "What drives bank competition? some international evidence," Policy Research Working Paper Series 3113, The World Bank.
  10. M. van Leuvensteijn & C. Kok Sørensen & J.A. Bikker & A.A.R.J.M. van Rixtel, 2008. "Impact of bank competition on the interest rate pass-through in the euro area," Working Papers 08-08, Utrecht School of Economics.
  11. J. A. Bikker & M. van Leuvensteijn, 2008. "Competition and efficiency in the Dutch life insurance industry," Applied Economics, Taylor & Francis Journals, vol. 40(16), pages 2063-2084.
  12. J.A. Bikker & K. Haaf, 2000. "Measures of competition and concentration in the banking industry: a review of the literature," Research Series Supervision (discontinued) 27, Netherlands Central Bank, Directorate Supervision.
  13. Christos K. Staikouras & Anastasia Koutsomanoli-Fillipaki, 2006. "Competition and Concentration in the New European Banking Landscape," European Financial Management, European Financial Management Association, vol. 12(3), pages 443-482.
  14. Angelini, Paolo & Cetorelli, Nicola, 2003. " The Effects of Regulatory Reform on Competition in the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 663-84, October.
  15. Boone, J. & van Ours, J.C. & van der Wiel, H.P., 2007. "How (Not) to Measure Competition," Discussion Paper 2007-32, Tilburg University, Center for Economic Research.
  16. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November.
  17. 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.
  18. Juan Fernández De Guevara & Joaquín Maudos, 2007. "Explanatory Factors Of Market Power In The Banking System," Manchester School, University of Manchester, vol. 75(3), pages 275-296, 06.
  19. Jacob Bikker & Laura Spierdijk, 2008. "How Banking competition Changed over Time," DNB Working Papers 167, Netherlands Central Bank, Research Department.
  20. Hempell, Hannah S., 2002. "Testing for Competition Among German Banks," Discussion Paper Series 1: Economic Studies 2002,04, Deutsche Bundesbank, Research Centre.
  21. Sandra F. Braunstein & Carolyn Welch, 2002. "Financial literacy: an overview of practice, research, and policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 445-457.
  22. G. Russo & W.H.J. Hassink, 2005. "The Part-Time Wage Penalty: a Career Perspective," Working Papers 01-01, Utrecht School of Economics.
  23. Amparo Nagore & Joaquín Maudos Villarroya, 2005. "Explaining Market Power Differences In Banking: A Cross-Country Study," Working Papers. Serie EC 2005-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  24. Bikker, Jacob A. & De Dreu, Jan, 2009. "Operating costs of pension funds: the impact of scale, governance, and plan design," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(01), pages 63-89, January.
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