Markets and competition.

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1Running head: Markets and competitionStructure, Conduct and Performance of USBanking Sector
Markets and competitionTable of ContentsIntroduction......................................................................................................................................3SCP in US banking sector................................................................................................................5Structure of the market................................................................................................................5Conduct of the banks...................................................................................................................6Performance of the banks............................................................................................................7Drawbacks to the SCP frameworkrelating US banking sector.......................................................8Conclusion.......................................................................................................................................9References......................................................................................................................................10Bibliography..................................................................................................................................112|P a g e
Markets and competitionIntroductionThe plan of the assignment is to analyse the rivalry and concentration in the United State’sbanking sector. This is critically made by examination of price-concentration relationship interms of the banking sector of the US industry. The assignment will follow along with the linesof Berger and Hannan (1989), who studied US banking industry in the particular way as well asOkeahalam (1998), who considered price-concentration relationship in South Africa. The USbanking sector took a new length with the beginning of its economic reforms in relation tospecific policies and regulation since the business year 1990. The main strategies useful by thebanks under the competitive business circumstances incorporates distinct products and services,strategic marketing such as advertising, broadening customer base by promotional activities aswell as diversification to reduce the risk of operation, mergers and acquisitions in order toconsolidate the business and increase competence as well as joint ventures with the internationalbanks for enhancing capital base and efficient management. The policy and regulatoryframework changes brought by the US government significantly brought huge competition in themarket while enhancing the efficiency of the banks. This significantly raised several issues andaffected the arrangement of the market in US banking sector. The regulatory roles which have tobe made by the banks such as JPMorgan Chase are to sustain the competitive market andenhance the competence of the banks. The rationale rising behind this problem slander in thestructure-conduct-performance (SCP) relationships developed by Mason (1939), significantlyproposed that the likelihood of collusive behavior critically enhances when the market isconcentrated with few firms. This, in turn, states that greater the market concentration, the morethe firm can earn profitability. The SCP relationships in US banking sector are well identified in3|P a g e
Markets and competitionthe literature. The limitation and contradictions in the SCP relationships lie in assumptionsrelating to measures of market structure. Furthermore, the market concentration might not be aindication of the collusive behavior of banks and it is the interpretation of their superiorefficiency. The consideration of both efficiency and market power has to be considered forcritical understanding and analysis which is largely unexplored in the existing studies. Theassignment has four section discussing SCP relationship in US banking sector, the structure ofthe market, and conduct of the banks and performance of the banks in a detailed manner.4|P a g e
Markets and competitionSCP in US banking sectorStructure of the marketThe structure of the market is analyzed in relation to the quantity of seller’s concentrationbecause it is an essential characteristic of the level of flawed rivalry in the US market. As per thebusiness organization literature, the method used in this study is n-firm concentration ratio andHerfindahl-Hirschman Index (HHI) to learn the extent o market concentration in the US bankingsector. The HHI and n-bank concentration ratio can gauge the quantity of concentration in themarket entirely. After analyzing the US banking sector, few critiques suggested that the bankshave a stronghold in the market in terms of the banking sector. The supply which criticallyaffects the business of US banking sectors is product or service durability and business attitude(Bhatti & Hussain, 2010). On the other hand, the demands that affect the business are theavailability of substitutes and consumer behavior. The asset base and average market size of thebanks significantly increased during the year 2000 to 2010. There are not many distinctions inthis method which state that the market size and asset base are steady across the US banks. Thediversification and integration of foreign banks in the country significantly affected the marketconcentration of US banking sector which affected the business profitability (Jaw, Lo & Lin,2010). The standard market share of the banks was consistently low throughout the phase underconsideration. Although when the extent of variations declined, the market share enhanced. Theentry and exit condition associated with the US banking sector is critical and firm whichcritically affects the cost structures and product differentiation. The barriers to entry are at higherlevel affecting business profitability. The n-firm concentration ratio and HHI suggest that marketconcentration in the sector is consistently low which in turn decreases market concentration5|P a g e
Markets and competitionduring the period. In contrast, the declines have not been critical. Table 1, 2 and 3 in Appendixsignificantly provides critical explanation of the structure of the market in US banking sector.After analysis, it has been learned that US banking sector measured in terms of a market sharedepends critically on its structural aspect of the market such as past financial performance andconduct like selling effort (Kunc & Morecroft, 2010). The SCP relationships in US bankingsector is multidirectional as the structure of the armlets impacts performance by conduct. Therelationship is instantaneous as if the selling efforts lagged the financial performance also lagsbehind which critically affect the supply and demand of the banks relevant to cost structure.6|P a g e
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