Kv, Bhanu Murthy and Deb, Ashis Taru (2008): Theoretical Framework Of Competition As Applied To Banking Industry.
Download (257kB) | Preview
Concepts evolve through time and over time they assume different meanings. The concept of competition is no exception. This paper discusses the evolution of the concept of competition in general with a view to derive a theoretical framework for analyzing competition in banking industry. Starting from the classical notions of competition it proceeds to some of the latest approaches (Northcott (2004), Neuberger (1998), Toolsema (2003), Bolt and Tieman (2001)). The ordinary Structure-Conduct-Performance approach does not involve any analysis of market dynamics. Our approach introduces various aspects of industry dynamics and growth. It provides a methodology to arrive at the market form in banking industry through an analysis of all the aspects of basic conditions, structure, conduct and performance. It is argued that sustained growth and dynamics of the industry is not price led. Growth arises out of changing basic conditions and dynamics arises out of sharing the new market created by basic conditions. Hence the prime mover of competition is rivalry among firms to control market share and to internalize externalities rather than adjustments brought about by the price mechanism.
|Item Type:||MPRA Paper|
|Original Title:||Theoretical Framework Of Competition As Applied To Banking Industry|
|Keywords:||Structure-Conduct-Performance;Competition theory;Banking competition;Basic Conditions;Entry facilitator|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B19 - Other
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D41 - Perfect Competition
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General
B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B29 - Other
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D49 - Other
|Depositing User:||K.V. Bhanu Murthy|
|Date Deposited:||06. Mar 2008 07:18|
|Last Modified:||09. Mar 2015 11:40|
Amel, D. F. and Rhoades, S.A. (1988) Strategic Groups in Banking, Review of Economics and Statistics, 70(1), pp.685-9.
Bain, J. (1956) Barriers to New Competition. Mass: Harvard University Press.
Bain, J S. (1968) Industrial Organisation. New York: John Wiley and sons.
Baldwin, W. L. (1987) Market Power, Competition and Antitrust Policy. Illinois: Irwin.
Benston, G. and Smith, C.G. (1976) A Transaction Cost Approach to the Theory of Financial Intermediation, Journal of Finance, 31(2), pp. 215-231.
Biswas, P. K. and Deb, A.T. (2004) Determinants of NPAs in the Indian Public Sector Banks, The ICFAI Journal of Bank Management, 3(3), pp.15-45.
Bikker, J.A and Haaf, K. (2002) Competition, Concentration and Their Relationship: An Empirical Analysis of The banking Industry, Journal of Banking and Finance, 26(11), pp.2191-2214.
Bolt and Tieman (2001) Banking Competition – Risk and Regulation. DNB Staff Working Paper, Amsterdam. Bhattacharya, Aditya, (2003) India’s Competition Policy- An assessment.” Economic and Political Weekly, 38(34), pp 3561-3574.
Bresnahan, T.F., and Reiss, P.C. (1991) Entry and Competition in Concentrated markets, Journal of Political Economy, 99(5), pp.977-1009.
Burgess, G. H. (1988) Industrial Organisation. New Jersey: Prentice Hall.
Calomiris, C.W., and Kahn, C.M.(1991) The Role of Demandable Debt in Structuring Optimal Banking Arrangements, American Economic Review, 81(3), pp. 497-513.
Chamberlin, E. H. (1933) A Theory of Monopolistic Competition. Cambridge, Mass: Harvard University Press.
Caves, R.E. and Porter, P. (1978) Market Structure, Oligopoly and Stability of market shares, Journal of Industrial Economics, 26(4), pp.289-313.
Corrigan, E.G. (1982) Are Banks Special? Annual Report, Federal Reserve Bank of Minneapolis, pp. 2-24.
Dastidar, K.G.(2004) On Stackelberg Games in a homogenous Product Market, European Economic Review, 48(3), pp. 549-562.
Davies, S. and Lyons, B. (1991) Economics of Industrial Organisation. New York: Longman.
De, Prithwis K. (2004) Technical efficiency, Ownership, and Reforms: An Econometric Study of Indian Banking Industry, Indian Economic Review, 39(1), pp. 261-294.
Deb, A.T. (2004) Market Structure and Entry: A Study of the Determinants of Market Concentration in Private Domestic Banking Industry in India, Paper presented in 6th annual conference on money and finance, Indira Gandhi Institute for Development Research, Mumbai.
Demstez, H. (1995) The Economics of Business Firms: Some Critical Commentaries. New York: Cambridge University Press.
Denizer, C. (1997) The Effect of Financial Liberalisation and New Bank Entry on Market Structure and Competition in Turkey, Research Policy Working Paper, WPS no 1839, World Bank, Washington DC.
Diamond, D. and Dybvig. P. (1983) Bank Runs, Deposit Insurance and Liquidity, Journal of Political Economy, 91(3), pp. 401-419.
Diamond, D.W. (1984) Financial Intermediation and Delegated Monitoring, Review of Economic Studies, 51(3), pp. 393-414.
Diamond, D.W., and Rajan, R.G. (2001) Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking, Journal of Political Economy, 109(2), pp. 287-327.
Eatwell, J., Milgate, M. and Newman, P. (1988) The New Palgrave Dictionary of Economics, vol.1. London: Macmillan Press Ltd. Fama, Eugene F. (1985) What’s Different About Banks? Journal of Monetary Economics, 15, pp 29-39 Fama, E. and Laffer, A. (1972) The Number of firms and Competition, American Economic Review, 62(4), pp.670-674.
Ferguson, P. and Ferguson, G. (1994) Industrial Economics. London: Macmillan Press Ltd.
Flannery, M.J. (1994) Debt Maturity Structure and the Deadweight Cost of Leverage: Optimally Financing Banking Firms, American Economic Review, 84(1), pp. 320-331.
Forrest, Capie and Mark, Billing (2004) ‘Evidence on Competition in English Commercial Banking – 1920-1970’. Financial History Review. V. 11, N.1, pp. 69-103. Freixas, X. and Rotchet, J. (1997) Microeconomics of Banking. Massachusetts: The MIT Press.
Gerosky, P. A. (1990) Innovation, Technological Opportunity and Market Structure, Oxford Economic Papers, 42(3), pp.586-602.
Gerosky, P. A. (1989) Entry, Innovation and Productivity Growth, Review of Economics and Statistics, 71(4), pp.572-578.
Gibson, R. A. (1984) Bank Market Structure and Competition, Journal of Money, Credit and Banking, 16(4), pp.616-645.
Gort, M. (1963) Analysis of Stability and Change in Market Share, Journal of Political Economy, 71(1), pp.51-63.
Hannan, T. H. (1991) Foundations of the Structure-Conduct-Performance Paradigm in Banking, Journal of Money, Credit and Banking, 23(1), pp. 68-84.
Haslem, J. A. (1985) Commercial Bank Management. Virginia: Reston Publishing Co.
Hay, D. and Morris, D. (1991) Industrial Economics and Organization: Theory and Evidence. London: Oxford University Press.
Hayek, F.A. (1948) Individualism and Economic Order, Chicago: University of Chicago Press.
Hayes, S. Spence, A.M. and Marks, D.V.P. (1983) Competition in the Investment Banking Industry. Harvard University Press: Cambridge.
Hawtrey, R.G. (1943) Competition from Newcomers, Economica, 10(new series: 37-40), pp.219-222.
Heggestad, A. A. and Rhoades, S.A. (1976) Concentration and Firm Stability in Commercial Banking, Review of Economics and Statistics, 58(4), pp. 443-452.
Malgi, T. (1992) Private Sector Banks: Bright days ahead, Economic and Political Weekly, 27(6), pp.301-302.
Mann, M (1966) ‘Seller concentration, Barrier to entry and Rates of return in Thirty Industries 1950-1960.’ Review of Economics and Statistics, August
Mc Guckin, R. (1972) Entry, Concentration Change and Stability of Market Share, Southern Economic Journal, 38(3), pp.363-70.
McNulty, P.J. (1968) Economic Theory and The Meaning of Competition, Quarterly Journal of Economics, 82(4), pp.639-656.
Molnar-Marton, Jozself and Nagy-Csilla Horvath (2007), A Structural Empirical Analysis of Retail Banking Competition: The Case of Hungary. MNB Working Paper. N.1. Muller, D. C. (1986) Profits in the long run. Cambrige: Cambridge University Press.
Murgkar, Ramasway and Shelar (2007) Competition and Monopoly in Indian Cotton Seed Market, Economic and Political Weekly, 52(37), pp 3781-3789.
Murthy, K V Bhanu and A. T. Deb (2007) Operationalizing and Measuring Competition: Determinants of Competition in Private Banking Industry in India. SSRN Working Paper.
Murthy, K V and A. T. Deb (2007) Theoretical Framework Of Competition As Applied To Banking Industry. SSRN Working Paper.
Nickell, S. J. (1996) Competition and Corporate Performance, Journal of Political Economy, 104(4), pp.724-746.
Neuberger, Doris (1998) Structure, Conduct and Performance in Banking Markets. Working Paper, University of Rostock, Faculty of Economics and Social Sciences.
Newman, H.H. (1978) Strategic Groups and the Structure- Performance Relationship, Review of Economics and Statistics, 60(1), pp.417-27.
Northcott, Carol Ann (2004) Competition in Banking: A Review of the Literature. Bank of Canada, Working Paper, N.24., Ottawa.
Rees, R. D. (1975) Advertising, Concentration and Competition: A comment and Further Results, Economic Journal, 85(337), pp.165-172.
Reid, G. (1987) Theories of Industrial Organization. Basil Blackwell: Oxford.
Richardson, G.B.(1975) Adam Smith on Competition and Increasing Returns in A. Skinner and T. Wilson ed. Essays in Smith, A. Skinner and T. Wilson. Clarendon Press: Oxford, pp. 350-360.
Santemoro, A. M. (1984) Modeling the Banking Firm, Journal of Money, Credit and Banking, 16(4), pp. 576-602.
Sarkar. J. (1999) India’s banking sector: Current Status, Emerging challenges, and policy imperatives in globalized environment, in J. Hansen and S. Kathuria, eds. India: A financial sector for the twenty-first century. New Delhi: Oxford University Press, pp. 71-131. Saving, T. (1970) Concentration Ratio and Degree of Monopoly, International Economic Review, 11(1), pp.139-146.
Sawyer, M. (1981) The Economics of Industries and Firms: Theory, evidence and Policy. London and Sydney: Croom Helm.
Schmalensee, R. (1989) Inter-Industry Studies of Structure and Performance in Schmalensee, R. and Willing, R. ed. Handbook of Industrial Organisation, volume North Holland, Amsterdam.
Schumpeter, J. (1934) The Theory of Economic Development, Cambridge, Mass: Harvard University Press.
Schumpeter, J. (1942) Capitalism, Socialism and Democracy. New York: Harper and Row.
Shepherd, W.G. (1972) The Elements of Market Structure, Review of Economics and Statistics, 54(1), pp. 25-37.
Siddharthan, N.S. and Pandit, B.L. (1992) Deregulations, Entry and industrial Performance: The Impact of Recent Indian Policy Changes, Working Paper No E/152/92, Institute of Economic Growth.
Simon, H. A. and Bonini, C.P. (1958) The Size Distribution of Business Firms, American Economic Review, 48, pp. 607-17. Shaffer, Sherrill (1993) ‘A Test of Competition in Canadian Banking’. Journal of Money Credit and Banking. V. 25, N. 1, Feb. pp. 49-61. Shirai and Rajsekaran (2001) Is India’s Banking Sector Reform successful? From the perspective of the Governance of the Banking System. Mimeo, Keio University.
Shubik, M (1976) A Non-coperative model of a Closed Economy With Many Traders and Two Banks, Zeitschrift fur Nationalokonomie, 36, pp.10-18.
Shubik, M. (1990) A Game Theoretic Approach to the Theory of Money and Financial Institutions, in B.H. Friedman, and F.H. Hahn eds., Handbook of Monetary Economics, vol.1.Oxford: Elsevier Science Publishers B.V., pp.172-218
Shy, O. (1996) Industrial Organisation: Theory and Applications. Cambridge: The MIT Press.
Smith, A. (1976) The Wealth of Nations. Oxford: Clarendon.
Stigler, G.J. (1961) The Economics of Information, Journal of Political Economy, 69(3), pp.213-25.
Sumalatha, B.S. (2008) State of Competition among Mutual Funds in India: An exploratory Analysis. Paper Presented to 44th Indian Econometrics Conference, 3rd to 5th January, Hyderabad.
Sutton, C. J. (1974) Advertising, Concentration and Competition, Economic Journal, 84 (333), pp.56-69.
Telser, L.G. (1964) Advertising and Competition, Journal of political Economy, 72(6), pp.537-562.
Tobin, J. (1963) Commercial Banks as Creators of Money in Carson, D. ed. Banking and Monetary Statistics, Homewood, IL: Richard D, Irwin, Inc.
Toolsema (2003) On Competition and Banking. Thesis of RijksUniversitet, Groningen.
Young, Allan (1928) Increasing Returns and Economic Progress, Economic Journal, 38, pp.527-42.
Vickers, (1995) Concepts of competition, Oxford Economic Papers, 47(1), pp 1-23.
Waterson, M. (1984) Economic Theory of Industry. Cambridge: Cambridge University Press. Winter, S. G. (1984) Schumpetarian competition in Alternative Technological regimes, Journal of Economic Behaviour and Organisation, 5(4), pp. 287-320.