27 - Measures of competition and concentration in the banking industry: a review of the literature

Wetenschappelijke publicatie
Date 1 September 2000

Measures of concentration and competition are of vital importance for welfare-related public policy toward market structure and conduct in the banking industry. Theoretical characteristics of ten market concentration measures are discussed and numerical examples illustrate differences and similarities between these concentration indices in operation. Measures of competition can be divided into structural and non-structural ones. In structural approaches concentration ratios take a central position in order to describe the market structure, forging a natural link between concentration and competition. The impact of market concentration on market performance has its roots in both the oligopoly theory and the structure-conduct-performance paradigm. Non-structural approaches to measuring competition do not depend on concentration. The survey includes empirical results of the various methods applied to the European banking industry.