Theoretical Framework Of Competition As Applied To Banking Industry

Kv, Bhanu Murthy and Deb, Ashis Taru (2008): Theoretical Framework Of Competition As Applied To Banking Industry.

Abstract

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
• Language: English
• 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

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