Deregulation, Competition and Consumer Welfare in Banking Market: Evidence from Hong Kong

Abstract

This working paper was written by Chun-Yu Ho (Boston University).

This paper examines competition among commercial banks following deregulation in a small open economy. I jointly estimate a system of differentiated product demand and pricing equations, and use conduct parameters to identify market structure. The empirical results show that the banking sector is characterized by the Nash-Bertrand equilibrium in which bank size is important for product differentiation. Following deregulation, bank competition intensifies and cost efficiency improves.

Keywords: Banking, Conduct Parameters, Consumer Welfare, Demand, Deregulation, Hong Kong, Product Differentiation

JEL Classification: G21, L13