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When Measuring the Same Leads to Different Conclusions - A Critical Review of Measures Applied to Assess the Degree of Competition in Banking Systems

Toni Richter (), Holger Müller () and Horst Gischer ()
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Toni Richter: Otto-von-Guericke-University Magdeburg, PO Box 4120, 39016 Magdeburg
Holger Müller: Leipzig University of Applied Sciences (HTWK), PO Box 301166, D-04251 Leipzig
Horst Gischer: Otto-von-Guericke-University Magdeburg and Forschungszentrum für Sparkassenentwicklung e. V. (FZSE), PO Box 4120, 39016 Magdeburg

Credit and Capital Markets, 2020, vol. 53, issue 1, 43-80

Abstract: Economic studies on the degree of competition (DC) in banking systems use various measures which are subsumed under the 1) structure- (e.g. Herfindahl-Hirschman index), 2) conduct- (e.g. Boone indicator) or 3) performance-oriented approach (e.g. Lerner index). Yet, the respective empirical operationalizations of the different DC measures are expected to represent one central construct – the true DC of a banking system. We review 35 studies covering 15 European bank-ing systems from 1998 to 2007. Contrasting the central construct hypothesis, we find substantial differences in the produced DC measures. Thus, the economic validity of derived conclusions regarding the competition intensity is challenged.

Keywords: Competition measurement; Degree of competition (DC); SCP paradigm; European banking system; Banking industry; Lerner index; Boone indicator; H statistic; CH3; Central construct hypothesis (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 L16 (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:kuk:journl:v:53:y:2020:i:1:p:43-80