Data Management

Estimating The Intensity Of Price And Non-price Competition In Banking

Date Added: Oct 2009
Format: PDF

The authors model bank oligopoly behaviour using price and non-price competition as strategic variables in an expanded conjectural variations framework. Rivals can respond to changes in both loan and deposit market prices as well as (non-price) branch market shares. The model is illustrated using data for Spain which, over 1986-2002, eliminated interest rate and branching restrictions and set off a competitive race to lock-in expanded market shares. Banks use both interest rates and branches as strategic variables and both have changed over time. They illustrate the results using a regional vs. a national specification for the relevant markets.