The Analysis of Competition in Banking: Theory and Empirics
The Analysis of Competition in Banking: Theory and Empirics
This chapter presents the core analysis of competition in the banking sector based on the industrial organization (IO) approach. It examines both theoretical and empirical aspects as well as at the special problems in analyzing the sector. This includes studying pricing, product differentiation, frictions, network externalities and two-sided markets, market structure, and mergers. The validity of the Structure–Conduct–Performance paradigm for banking is tested and the contributions of the new empirical IO is explained. The effects of asymmetric information and deregulation are also discussed. The chapter concludes with an assessment of behavioral biases of consumers and investors, along with their effects on the strategies of banks, competition, and welfare.
Keywords: competition, banking sector, industrial organization approach, pricing, product differentiation, network externalities, two-sided markets, mergers, asymmetric information, deregulation
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