Measuring Competition in Banking: A Disequilibrium Approach

31 Pages Posted: 4 Aug 2008

See all articles by John Goddard

John Goddard

Bangor University - Bangor University

John O. S. Wilson

University of St. Andrews

Date Written: August 4, 2008

Abstract

The Rosse-Panzar revenue test for competitive conditions in banking is based on observation of the impact on bank revenue of variation in factor input prices. We identify the implications for the H-statistic of misspecification bias in the revenue equation, arising when adjustment towards market equilibrium is partial and not instantaneous. In simulations, fixed effects estimation produces a measured H-statistic that is severely biased towards zero. Empirical results for the banking sectors of six developed countries corroborate our principal finding, that a dynamic formulation of the revenue equation is required for accurate identification of the H-statistic.

Keywords: banking, competition, revenue test, dynamic panel estimation

JEL Classification: L11, N20

Suggested Citation

Goddard, John and Wilson, John O. S., Measuring Competition in Banking: A Disequilibrium Approach (August 4, 2008). Available at SSRN: https://ssrn.com/abstract=1200222 or http://dx.doi.org/10.2139/ssrn.1200222

John Goddard

Bangor University - Bangor University ( email )

Bangor, Wales LL57 2DG
United Kingdom

John O. S. Wilson (Contact Author)

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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