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

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. (C) 2002 Elsevier Science B.V. All rights reserved.