Competition, concentration and their relationship: An empirical analysis of the banking industry

Abstract

This article examines competitive conditions and market structure in the banking industry, and investigates their interrelationship. Competition is measured using the Panzar-Rosse model. In order to distinguish competitive behaviour on local, national and international markets, for each country, three subsamples are taken: small or local banks, medium-sized banks and large or international banks. For all 23 countries considered, estimations indicate monopolistic competition, competition being weaker in local markets and stronger in international markets. Subsequently, a relationship for the impact of the market structure on competition is derived and tested empirically, providing support for the conventional view that concentration impairs competitiveness. © 2002 Elsevier Science B.V. All rights reserved.