Measuring competition in banking: A critical review of methods

Florian Leon (1)

1 CERDI - Centre d'Études et de Recherches sur le Développement International

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.

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

Domaines: Economies et finances

Florian Leon. Measuring competition in banking: A critical review of methods. 2015. ⟨halshs-01015794v2⟩