Measuring Competition in Iranian Banking Sector: The Hall-Roeger Approach

Document Type : Original Article

Authors

1 Department of Economics, Faculty of Management and Economics, University of Sistan and Baluchestn

2 M.A in Economics, Faculty of Management and Economics, University of Sistan and Baluchestn

Abstract

This paper employs the Hall-Roeger model to determine the level of competition in Iranian banking industry during 2007 -2011. In so doing, the Lerner Index calculated for 18 Private and Public banks. We find that during this period the Lerner index for 15 banks has been fluctuated from 0.1 to 0.90 and for three remain banks is negative. The findings suggest that more than 0.80 of operating in the country, there is significant gap between their price and marginal costs lead them to gain market power. Also in this study we have estimate the Herfindal-Hirschman Index and the k bank ratio over the years of 2003-2011 and show that over this period concentration degree has reduced.

Keywords


-     Omidinejad, M. (2012). Iranian Banking Performance Report in 2011 (in Persian), Iranian Banking Education Institute, Tehran, (1). 
-     Iranian Central Bank, Monetary and Banking Research Institute. (2012). Conference on Non-Banking Credit Institutes in Iran (in Persian), Tehran.
-     Hosseini, MA., Permeh, Z. (2010). Evaluating of Monopoly, Competition and Concentration at Iranian Chicken Meet and Eggs Market (in Persian), Journal of Knowledge and Development, (30).
-     Kodad-e- Kashi, F., Jafari Leylab, P. (1998). Market Structure and Performance: Theory and Application in Iranian Industry (in Persian), Institute of Business Research Studies.
-     Kodad-e- Kashi, F., Jafari Leylab, P. (2012).  Market Structure of Iranian Banking Sector from 2006 to 2011 (in Persian), Business Studies, (52), 34-40.
-     Ebadi, J,. Shahiki Tash, MN,. (2004).  Evaluation of Competition Degree in Iranian Industrial Markets, Journal of Business Studies, (31) (in Persian).
-     Sadrey-e-Johari, A., Zabihidan, MN,. (2012). Survey the Effect of Research & Development on Iranian Manufactories Performance (S-C-P method), Journal of Economic Strategy, (3) 1(in Persian).
-     Najarzaedeh, R,. Ezati, M,. Mirzanejad, H,. (2012). Evaluating of Competitiveness Degree of Iranian Banking Sector Using Panzar-Rosse Model, Journal of Iranian Economic Studies, (51) , 157-179(in Persian). 
-     Ministry of Commerce, The Planning and Economic Affairs Office,. (2004). The Survey of Structure (Measuring the Concentration Degree) in Iranian Banking Sector and its Social Costs (in Persian),. 
-     Appelbaum, E. (1979) "Testing price taking behavior” journal of econometrics (9): 283-94.
-     Appelbaum, E. (1982), "the estimation of the degree of oligopoly power". Journal of econometrics (19): 287-99.
-     Al-Muharrami,S, Mathews, K, and Y, Kabir(2006),Market Structure and CompetitiveConditions in the Arab GCC Banking System, Cardiff Economic Working Papers.
-     Thum-Thysen, A & Canton, E,. (2015). Estimation of Service Sector Mark-Ups Determined by Structural Reform Indications,. European Economy,. Economic Papers No. 547.
-     Azzam, A. (1997). "Measuring market power and cost- efficiency effects of industrial concentration “Journal of industrial economics 45 (4): 377-86.
-     Baltagi,Badi Hani, Econometric analysis of Panel Data, British library Cataloguing in Publication Data , John Wiely & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex Po19 8SQ, England, third edition, 2005.
-     Bresnahan, Timothy F. (1989) 'Studies of Industries with Market Power', in Richard Schmalensee and Robert Willig (eds. ), Handbook of industrial Organization, New York: North Holland.
-     Bikker, A, Jacob ; Haaf K ; Measuring of Competition and Concentration in the Banking Industry; A review the Literature ; De Nederlandche Bank ; Research Series Supervision no.27; September 2000.
-     Bikker, A, Jacob ; Haaf,  Katharina  ; Competition, Concentration and their Relationship : An Empirical Analysis of the Banking Industry ; Journal of Banking & Finance ; JBF 1747 ; no. of pages 25 ; 2002
-     Bikker, A, Jacob ; Groeneveld, J M ; Competition and Concentration in EU Banking Industry ; De Nederland’s Bank , Research series Supervision ,no.8 ; June 1998
-     Bresnahan, Timothy F. (1989) 'Studies of Industries with Market Power', in Richard Schmalensee and Robert Willig (eds.), Handbook oflndustrial Organization, New York: North Holland.
-     Boone, J. (2008). Competition: theoretical parameterizations and empirical measures. Journal of Institutional and Theoretical Economics, 164:587,611.
-     Boone, J. (2008). A new way of measuring competition, The Economic Journal, 118:1245,61
-     Diana, chand Esfahani, A (2006), modeling market power in the Indonesian palm oil industry, www. Usyd. edu. au 
-     Hall, Robert E. (1988) "The Relationship between Price and Marginal Cost in U. S. Industry', Journal of Political Economy 96, 921-47.
-     Iwata, G. (1974)"measure ment of conjectural variation in oligopoly, econometrical42): 947-66.
-     Lau, Lawrence J. (1982) 'On Identifying the Degree of Competitiveness from Industry Price and Output Data', Economics Letters 10, 93-9.
-     Oliveira Martins, J. , and Scarpetta, S(1999), “The Levels and Cyclical Behaviour of Mark-ups Across Countries and Market Structures”, OECD Economics Department Working Papers No. 213.
-     Panzar, John C. and Rosse, James N. (1987) 'Testing for "Monopoly" Equilibrium', The Journal of Industrial Economics 35, 443-56.
-     Perloff . J & Shen . E,( 2012) "Collinearity in Linear Structural Models of Market Power,"  Review of Industrial Organization, Springer, vol. 40(2), pages 131-138, March.
-     Rezitis N. Anthony ; Evaluating the State of Competition of the Greek Banking Industry ; Journal of International Financial Markets, Institutions & Money ; 20  ; pp.68-90; 2010
-     Roeger, W.(1995) “Can Imperfect Competition explain the Difference between Primal and Dual Productivity Measures? Estimates for US Manufacturing”, Journal of Political Economy, 103, 316-30.
-     Shaffer; Sherrill ; A Test of Competition in Canadian Banking ; Journal of Money, Credit and Banking, Vol.25 ; No.1 (Feb 1993) ; PP. 49-61.
-     Twomey. P, Green. R (2005),A Review of the Monitoring of Market Power, Center For Energy and Environmental Policy Research,
-      http://web. mit. edu/ceepr/www/publications/reprints/Reprint_ 209_WC. pdf
 -     Simbanegavi W., Greenberg J andG., Testing for Competition in South African Banking Sector, MPRA Paper No. 43627 ,Posted 08, January 2013.