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Measuring competition in banking: A critical review of methods

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  • Florian LEON

Abstract

Many studies have attempted to investigate the determinants and implications of competition in the banking industry. The literature on the measurement of competition can be divided between the structural and non-structural approaches. The structural approach infers the degree of competition from the structure of the market. The non-structural approach, based on the New Empirical Industrial Organization, assesses the degree of competition directly by observing behavior of firms in the market. This paper reviews the most frequently-used structural and non structural measures of competition in banking. It highlights their strengths and weaknesses, especially for studies based on a limited number of observations.

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  • Florian LEON, 2014. "Measuring competition in banking: A critical review of methods," Working Papers 201412, CERDI.
    • Handle: RePEc:cdi:wpaper:1577
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    Keywords

    Competition; Bank; HHI; Lerner index; Conjectural variation model; Panzar-Rosse model; Boone indicator;
    All these keywords.

    JEL classification:

    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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