Assessing competition in banking industry: a multiproduct approach

Available from: 
October 2013
Paper author(s): 
Fernando Salazar (Sao Paulo School of Economic - FGV)
Klenio Barbosa (Sao Paulo School of Economic - FGV)
Bruno Rocha (Cedeplar/UFMG)
Financial Economics

This paper aims to investigate the competition aspects of banking multiproduct operation. Based on an extension of Panzar and Rosse (1987)’s test to the case of a multiproduct banking firm, we take advantage of a new dataset constructed to Brazilian banking conglomerates to infer the impact of conglomeration on market power. We find that banks offering classic (i.e., loans and credit cards) and other bank products (i.e., brokerage services, insurance and capitalization bonds) have substantially higher market power than the ones which offer only classic products. Results suggest a positive bias on the traditional estimates of competition in which the multioutput actions are not taken into account.


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Research section: 
Lacea 2013 annual meeting
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