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Measuring Competition in Banking : A Disequilibrium Approach

Author

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  • John Goddard

    (Bangor Business School, University of Wales)

  • John O.S. Wilson

    (School of Managent, University of St. Andrews)

Abstract

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.

Suggested Citation

  • John Goddard & John O.S. Wilson, 2008. "Measuring Competition in Banking : A Disequilibrium Approach," EIEF Working Papers Series 0808, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2008.
    • Handle: RePEc:eie:wpaper:0808
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    References listed on IDEAS

    as
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    Cited by:

    1. Anwar Hossain Repon & K.M Zahidul Islam, 2016. "Competition and Concentration in Bangladeshi Banking Sector: An Application of Panzar-Rosse Model," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 5(1), pages 14-29, January.
    2. Sunarmo, 2018. "Market Structure And Competition Of Islamic Banking In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 20(3), pages 307-324, January.

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