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Measuring competition in banking: A critical review of methods

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  • Florian Leon

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Florian Leon, 2015. "Measuring competition in banking: A critical review of methods," Working Papers halshs-01015794, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01015794
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01015794v2
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    Keywords

    Boone indicator; Panzar-Rosse model; Conjectural variation model; Lerner index; HHI; Bank; competition;
    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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