Competition and Contestability in Canada's Financial System: Empirical Results

Abstract

This paper presents empirical assessments of the competitiveness in the Canadian banking, trust company, and mortgage company industries, which support the view that parts of Canada's financial system exhibit characteristics of contestability. Since asset concentrations in Canada's financial system do not seem to be decreasing, and since it has long been believed that financial industry concentration impairs competitiveness, making such assessments seems worthwhile. The authors use a nonstructural estimation technique to evaluate the elasticity of total revenues with respect to changes in input prices. The significantly positive values of the elasticity measure indicate that Canada's financial system does not exhibit monopoly power.