A New Measure of Competition in the Financial Industry: The by Jacob A Bikker, Michiel van Leuvensteijn

By Jacob A Bikker, Michiel van Leuvensteijn

The 2008 credits predicament all started with the failure of 1 huge financial institution: Lehman Brothers. in view that then the point of interest of either politicians and regulators has been on stabilising the economic climate and fighting destiny monetary instability. At this juncture, we're on the final level of future-proofing the monetary region by means of elevating capital requisites and tightening monetary legislation. Now the coverage time table must be aware of reworking the banking region into an engine for development. Reviving festival within the banking region after the kingdom interventions of the previous years is a key step during this process.

This ebook introduces and explains a comparatively new notion in festival size: the performance-conduct-structure (PCS) indicator. the most important concept in the back of this degree is firm’s potency is extra hugely rewarded when it comes to industry proportion and revenue, the enhanced aggressive strain is. The ebook starts off by means of explaining the monetary market’s basic stumbling blocks to pageant offering a quick survey of the complicated courting among monetary balance and festival. The theoretical contributions of Hay and Liu and Boone give you the theoretical underpinning for the computers indicator, whereas its program to banking and assurance illustrates its empirical traits. eventually, this booklet provides a scientific comparability among the result of this technique and (all) present tools as utilized to forty six nations, over an identical pattern interval.

This e-book offers a finished review of the knowns and unknowns of economic quarter festival for advertisement and relevant bankers, policy-makers, supervisors and lecturers alike.

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The elasticity of 12â•… Jacob A. Bikker and Michiel van Leuvensteijn residual demand determines how attractive it is for a firm to change its prices unilaterally. The firm may relinquish a price agreement, if only demand responds sufficiently strongly to price changes. In the absence of coordination among financial institutions, low elasticity of demand will also help to keep prices above competitive levels, as in that case the loss of sales caused by a price increase will be small. High search and switching costs contribute to low firm-level demand elasticity.

Cummins, K. A. Weiss (2013b) Systemic risk measures in the insurance industry: A copula approach, Working paper, Temple University, Philadelphia. Claessens, S. (2009). Competition in the financial sector: Overview of competition policies. IMF Working Paper WP/09/45, International Monetary Fund. CPB (2003). Tight oligopolies. CPB Document no. 29, CPB Netherlands Bureau for Economic Policy Analysis, The Hague. CPB (2005). Competition in markets for life insurance. CPB Document no. 96, CPB Netherlands Bureau for Economic Policy Analysis, The Hague.

E. the Willig mechanism) is at work, and link it to the model of product market competition. 2, for a given degree of competition in the market (defined in terms of behaviour rather than the number of players), a firm with lower relative costs will enjoy a higher market share and a higher price cost margin, and hence, ceteris paribus, higher profit than its rivals. If managerial remuneration is in any way linked to performance, then the managers will have incentives to get costs down. ) Further, the more competitive is the behaviour of the firm, the stronger is the relationship between efficiency and performance and hence the greater the incentives for managers to pursue efficiency.

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