This paper examines market concentration and competition in the Korean and Chinese commercial banking markets for the period of 1992-2008. This study empirically investigates whether changes in bank concentration have affected the degree of competition in the Korean and Chinese commercial banking industries by estimating the H statistic of the Panzar-Rosse model. To test the competitive conditions, we obtained the H statistic from the revenue function equation, where three major input costs, labor expenses, capital costs and funding costs are used to estimate the revenue. Both total revenue and interest revenue are alternatively used. We also used the Boone Indicator model to confirm the results from the Panzar-Rosse model.
While market concentration in Korea decreased until the Asian financial crisis of 1997-98 due to financial deregulation, it has markedly increased since the crisis because of reduction in the number of banks, bank consolidation, and creation of mega banks. With this change, there has been a growing concern over market power in the Korean banking industry. Contrary to a growing concern over market power in Korean banking, the H statistic of the Panzar-Rosse model indicates that increased concentration has not lessened competition in Korea. The Korean banking industry has been monopolistically competitive for the entire sample period while the Wald test of the H statistic shows competition in the Korean banking actually increased to the level of perfect competition during the crisis period temporarily. Although an increase in market concentration has not changed the overall level of competition for the entire sample period, that is, still monopolistically competitive, market concentration has resulted in less competition over time evidenced by gradual decline of the H-statistic over time, diminishing Boone’s β values and an increase in the average interest margin.
On the other hand, the Chinese banking industry has become increasingly less concentrated market with an increase in the number of banks, which can be attributable to financial deregulation, creation of joint equity commercial banks and establishment of local banks by local governments. This study finds that along with decreased market concentration, competition in the Chinese banking industry has improved moderately. However, its market structure is far from a competitive market, as evidenced by small H statistic values. Compared to the banking industry of Korea and other countries, the Chinese banking industry is still highly concentrated and its level of competition is closer to oligopoly.
JEL classification: G21, L10
Key words: bank consolidation, bank competition, Korean banks, Chinese banks
학회소식
[2012년 제 4차] Testing for Competition in the South Korean and Chi
작성자 : 관리자
조회수 : 1022
게시일 :
2012-12-12
