Assessing competition in the banking industry: A multi-product approach

Klenio Barbosa, Bruno Rocha and Fernando Salazar

Journal of Banking & Finance, 2015, vol. 50, issue C, 340-362

Abstract: This paper investigates the competitive aspects of multi-product banking operations. Extending Panzar and Rosse’s (1987) model to the case of a multi-product banking firm, we show that higher economies of scope in multi-product banking are associated with lower Panzar–Rosse measures of competition in the banking sector. To test this empirical implication and determine the impact of multi-production on market power, we use a new dataset on the Brazilian banking industry. Consistent with our theoretical prediction, we find that banks that offer classic banking products (i.e., loans and credit cards) and other banking products (i.e., brokerage services, insurance and capitalization bonds) have substantially higher market power than banks that offer only classic products. These results suggest a positive bias in the traditional estimates of competition in which multi-output actions are not considered.

Keywords: Bank competition; Panzar and Rosse; Multi-product banks (search for similar items in EconPapers)
JEL-codes: G21 L11 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Working Paper: ASSESSING COMPETITION IN BANKING INDUSTRY: A MULTIPRODUCT APPROACH (2014)
Working Paper: Assessing competition in the banking industry: a multi-product approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:50:y:2015:i:c:p:340-362

DOI: 10.1016/j.jbankfin.2014.05.003

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