Competition in Sri Lankan Commercial Banking Industry: A Panzar-Rosse Assessment (original) (raw)

The purpose of this paper is to investigate the evolution of market concentration and competition in Malaysian dual banking industry for the period of 1997-2013. This study utilized structural approach to investigate changes in the market structure particularly the level of concentration and competition that contributed by several structural changes which take place in the dual banking system. According to structural approach, concentration plays an important role in examining the link between concentration and competition. Therefore, present paper utilized the structural approach to measure various concentration indexes to provide significant evidence on the changes in the market structure of Malaysian banking industry for the largest available data set of 1997-2013. Pearson correlation analysis was also used to examine the consistency of those various measures used in this study. The paper found evidence that structural changes have altered the market structure of the banking industry which comprises of Islamic and conventional banking system. The results also indicate that dual banking industry operates in the monopolistic competition structure. Therefore, concentration indexes can be used by authorities to decide on the optimal number of banks operating in the industry.

seek the convenient position of equating competition with concentration (Murugkar et al., 2007). We differ from these strands of literature. We believe that the competition can be rigorously conceptualized and measured and that it cannot be subsumed in the measurement of concentration. Finally, there is a strong need to position theory of competition in the context of banking as distinct from the general notions of competition. The plan of the paper is as follows.

This study examines the degree of concentration and competition of Bangladesh banking industry for the period 1999-2008 by using both static (fixed effects methods) and dynamic (generalised method of moments) panel data estimators. According to the industrial organisation theory of firms, competition can be measured adopting structural and nonstructural approaches. However, the ambiguous nature of structural models necessitates this study to employ Panzar-Rosse H-statistic of nonstructural approach to measure the competition of Bangladesh banking sector. The empirical results of H-statistic of dynamic revenue equation clearly reject the monopoly and perfect competition hypotheses and conclude that banks in Bangladesh seem to earn their revenues, as if operating under conditions of monopolistic competition over the sample period. The low H-statistic indicates that there is considerable room for improvements in the competitive position of the banking industry.

The Iranian banking sector has undergone huge and substantial reform in the last decade; privatization, establishment of private banks and development of modern technologies (IT). This paper investigates the competitive condition of the Iranian banking industry over the period 2005-2010 using the H-statistic proposed by Panzar and Rosse. The properties of this non-structural methodology make it an excellent framework for assessing the degree of competition in the banking industry. To calculate H statistics, a reduced form of revenue equation was estimated. The calculated H statistics for the whole sample period was 0.7101.The extent of H statistics and the result of wald test indicate that the structure of Iranian Banking sector is neither monopoly nor competition. Our findings were in favor of monopolistic competition.