Handbook of Competition in Banking and Finance
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Handbook of Competition in Banking and Finance

Edited by Jacob A. Bikker and Laura Spierdijk

For academics, regulators and policymaker alike, it is crucial to measure financial sector competition by means of reliable, well-established methods. However, this is easier said than done. The goal of this Handbook is to provide a collection of state-of-the-art chapters to address this issue. The book consists of four parts, the first of which discusses the characteristics of various measures of financial sector competition. The second part includes several empirical studies on the level of, and trends in, competition across countries. The third part deals with the spillovers of market power to other sectors and the economy as a whole. Finally, the fourth part considers competition in banking submarkets and subsectors.
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Chapter 16: Competition and price conduct by bank service line

Wilko Bolt and David Humphrey


In this chapter, the authors test the ability of competition measures to distinguish between relatively high and low prices in four bank service lines: business and consumer loans plus savings and small time deposits. The HHI and H-statistic often do not do better than random chance. A Mark-up (an approximate Lerner index) or a frontier competition measure does better. The HHI is not predictive of realized price conduct and should not be used to assess or reject bank mergers. The challenge is how to use other measures to augment or replace the HHI in bank merger policy.

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