A Frontier Measure of U.S. Banking Competition
43 Pages Posted: 10 Dec 2012
Date Written: December 10, 2012
The three main measures of competition (HHI, Lerner Index, and H-Statistic) are uncorrelated for U.S. banks. We investigate why this occurs, propose a frontier measure of competition, and apply it to five major bank service lines using data only available since 2008. Fee-based banking services comprise 35% of bank revenues so assessing competition by service line is preferred to using a single measure for traditional activities extended to the entire bank. Academic-based competition measures explain only 1% of HHI variation. HHI merger/acquisition guidelines could be raised since current banking concentration seems unrelated to competition.
Keywords: Competition, banks, frontier analysis
JEL Classification: L11, G21, C21
Suggested Citation: Suggested Citation