A frontier measure of U.S. banking competition

Wilko Bolt, David Humphrey*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

The three main measures of competition (HHI, Lerner index, and H-statistic) are uncorrelated for U.S. banks. We investigate why this occurs, propose a frontier measure of competition, and apply it to five major bank service lines. Fee-based banking services comprise 35 percent of bank revenues so assessing competition by service line is preferred to using a single measure for traditional activities extended to the entire bank. As the Lerner index and the H-statistic together explain only 1 percent of HHI variation and the HHI is similarly unrelated to the frontier method developed here, current merger/acquisition guidelines should be adjusted as banking concentration seems unrelated to likely more accurate competition measures.

Original languageEnglish
Pages (from-to)450-461
Number of pages12
JournalEuropean Journal of Operational Research
Volume246
Issue number2
DOIs
Publication statusPublished - 16 Oct 2015

Keywords

  • (D) Productivity and competitiveness
  • Banks
  • Competition

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