Bank Market Structure and Competition: A Survey

Abstract

THIS PAPER SURVEYS empirical studies designed to provide evidence on how market structure influences the performance of depository institutions. These studies are divided into two groups. Those in one group estimate the relation between measures of bank market structure and performance.' The other studies estimate the cost structure of the banking industry. The cost studies are designed to determine whether the type of market structure that is conducive to competitive pricing of banking services is also consistent with efficient production of banking services. These studies have been conducted to provide the regulatory authorities with an empirical basis for evaluating the influence of bank mergers on competition and on the cost structure of the banking industry.2 The studies of bank market structure have changed little in the past twenty years. Consequently, the survey of this literature does not trace its development over time.