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

Klenio Barbosa, Bruno Rocha and Fernando Morais Farré Salazar

No 339, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: This paper investigates the competitive aspects of multi-product banking operations. Extending Panzar and Rosse (1987)’s model to the case of a multi-product banking firm, we show that the higher the economies of scope in multi-product banking are, the lower Panzar-Rosse’s measure of competition in the banking sector is. To test this empirical implication and determine the impact of multi-production/conglomeration on market power, we use a new dataset on Brazilian banking conglomerates. Consistent with our theoretical prediction, we find that banks offering 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.

Date: 2013-12-06
New Economics Papers: this item is included in nep-cba, nep-com and nep-ind
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Related works:
Journal Article: Assessing competition in the banking industry: A multi-product approach (2015)
Working Paper: ASSESSING COMPETITION IN BANKING INDUSTRY: A MULTIPRODUCT APPROACH (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:339

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