Differences between concentration and competition measures in banking

Running head: INTERNATIONAL FINANCIAL SERVICES
International Financial Services
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1INTERNATIONAL FINANCIAL SERVICES
Table of Contents
Introduction:....................................................................................................................................2
Differences between concentration and competition measures in banking:....................................2
Conclusion:......................................................................................................................................5
References:......................................................................................................................................6

2INTERNATIONAL FINANCIAL SERVICES
Introduction:
In the current era, both concentration and competition have become a recurrent topic in
the banking literature. More precisely, in the last decade, many empirical works have been
carried out for gauging the competition level inherent in banking markets. According to the
traditional view, rising competition might result in undesirable exercise of market power, in
which concentration impairs competition. However, this view has been contradicted vigorously
in recent times. The concentration and competition measures are critical to public policy
associated with welfare towards the banking market (Anginer, Demirguc-Kunt and Zhu 2014).
Both competition and concentration are associated with product markets as well as geographical
regions in empirical analyses and theory. The banks provide a variety of products, which do not
serve a particular market and explaining a relevant market includes undertaking preliminary
decision regarding potentially pertinent structural features like competition and concentration.
Differences between concentration and competition measures in banking:
The banking industry concentration implies the market share of each bank functioning in
the industry. If the concentration is greater, it implies increased prices for the customers and this
could result in upward trend in prices (Fiordelisi and Mare 2014). On the other hand, banking
industry competition implies the number of banks operating in the industry. In case of greater
concentration, price stability is present from which the customers would be benefitted
significantly.
Concentration measures in banking: