Operationalizing and Measuring Competition: Determinants of Competition in Private Banking Industry in India

K.V. Murthy () and Ashis Taru Deb

MPRA Paper from University Library of Munich, Germany

Abstract: Using an appropriate theoretical framework and econometric methodology, the study has sought to measure and model competition in private banking industry in India in an attempt to analyse the process of market dynamics in the industry. The changing scenario of private banking consequent to deregulation provided the motivation behind the study. It used the concept of competition proposed by Stigler (1961) and measured it by Bodenhorn’s (1990) measure of mobility. The study provides a critique of the mechanism of inducing competition, which is implicit in the Narasimham Committee (1991). It then provides the theoretical background of an alternative mechanism based on Structure-Conduct-Performance paradigm, which incorporates basic conditions and strategic groups, apart from including entry, economies of scale, product differentiation and price cost margin, One basic contention of the study is that competition goes beyond “conduct” and encompasses all the four components of S-C-P paradigm: basic conditions, structure, conduct and performance. Accordingly, a three equation simultaneous equation model is used to ultimately estimate the equation of competition through Tobit technique. The result demonstrates that variables related to basic conditions, structure, and conduct and performance influence competition. The study has found evidence against the simplistic relationship between concentration and competition, which remained implicit in the literature. The study also developed a methodology to arrive at market form from an analysis of three aspects of a market and concludes that private banking industry in India is characterized by monopolistic competition.

Keywords: Competition; Structure-Conduct-Performance; Banking reform; Tobit model (search for similar items in EconPapers)
JEL-codes: C25 D21 D40 D41 D49 E58 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-ban, nep-com, nep-cse, nep-mic and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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