Assessing Competition With the Panzar-Rosse Model: An empirical analysis of European Union banking industry

Suzana Cristina Silva Andrade ()

No 82, GEE Papers from Gabinete de Estratégia e Estudos, Ministério da Economia

Abstract: The purpose of the present article is to assess the degree of competition within the enlarged European Union (EU) commercial banking system during the period ranging from 2004 to 2011 using the non-structural test developed by Panzar and Rosse (1987). Their procedure measures the competitive environment in which financial intermediaries operate employing the sum of the elasticities of the reduced-form interest revenue with respect to factor prices. The main conclusion to retain from this study is that banking industry in the region does not seem to have operated either under perfect competition or under perfect monopoly, but rather consistently with long-run monopolistic competition. Further, we also find empirical evidence of efficiency hypothesis posted by Demestz (1973) and Peltzman (1977), as opposed to conventional view that concentration impairs price competitiveness. Finally, we underline the importance of trade off between the costs and benefits of competition to support financial stability objectives.

Keywords: Competition; Concentration; Banking industry; Panzar and Rosse Model (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2017-10, Revised 2017-10
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https://www.gee.gov.pt/RePEc/WorkingPapers/GEE_PAPERS_82.pdf First version, 2017 (application/pdf)

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