
Contents
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The Competitive Paradigm Does Not Apply to Banking The Competitive Paradigm Does Not Apply to Banking
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4.1 Theoretical Models 4.1 Theoretical Models
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4.1.1 Pricing 4.1.1 Pricing
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4.1.2 Product Differentiation 4.1.2 Product Differentiation
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4.1.3 Frictions: Switching Costs and Asymmetric Information 4.1.3 Frictions: Switching Costs and Asymmetric Information
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Relationship banking. Relationship banking.
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4.1.4 Network Externalities and Two-Sided Markets 4.1.4 Network Externalities and Two-Sided Markets
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4.1.5 Market Structure, Entry, and New Competitors 4.1.5 Market Structure, Entry, and New Competitors
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Market Structure Market Structure
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Entry Barriers Entry Barriers
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The New Competitors The New Competitors
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4.1.6 Mergers 4.1.6 Mergers
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Summary Summary
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4.2 Empirical Studies 4.2 Empirical Studies
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4.2.1 The SCP Paradigm 4.2.1 The SCP Paradigm
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Economies of Scale Economies of Scale
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Economies of Scope Economies of Scope
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Concentration and Market Power Concentration and Market Power
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4.2.2 The New Empirical IO 4.2.2 The New Empirical IO
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The Measurement of Competition The Measurement of Competition
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Pricing Models Pricing Models
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Network Effects Network Effects
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4.2.3 The Impact of Deregulation 4.2.3 The Impact of Deregulation
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4.2.4 Asymmetric Information and Relationship Banking 4.2.4 Asymmetric Information and Relationship Banking
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4.2.5 Mergers 4.2.5 Mergers
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Summary Summary
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4.3 Behavioral Industrial Organization and Banking 4.3 Behavioral Industrial Organization and Banking
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4.3.1 Behavioral Biases and Their Impact on Consumer Behavior 4.3.1 Behavioral Biases and Their Impact on Consumer Behavior
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4.3.2 Biases in Financial Markets 4.3.2 Biases in Financial Markets
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Summary: Behavioral Biases and Competition Summary: Behavioral Biases and Competition
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Chapter Summary Chapter Summary
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4 The Analysis of Competition in Banking: Theory and Empirics
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Published:August 2016
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Abstract
This chapter presents the core analysis of competition in the banking sector based on the industrial organization (IO) approach. It examines both theoretical and empirical aspects as well as at the special problems in analyzing the sector. This includes studying pricing, product differentiation, frictions, network externalities and two-sided markets, market structure, and mergers. The validity of the Structure–Conduct–Performance paradigm for banking is tested and the contributions of the new empirical IO is explained. The effects of asymmetric information and deregulation are also discussed. The chapter concludes with an assessment of behavioral biases of consumers and investors, along with their effects on the strategies of banks, competition, and welfare.
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