Assessing Competition in Canada's Financial System: A Note; Reply to Perrakis

Nathan and Neave (1989) presented an empirical assessment of the state of competition in several sectors of Canada's financial services industry, namely, banking, trust, and mortgage firms. This assessment was carried out by estimating the Panzar-Rosse (PR) statistic, using cross-sectional data...

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Bibliographic Details
Published in:The Canadian journal of economics 1991-08, Vol.24 (3), p.727
Main Authors: Perrakis, Stylianos, Neave, Edwin H, Nathan, Alli
Format: Article
Language:English
Subjects:
Competition
Critiques
Economic models
Economic theory
Financial services
Market equilibrium
Oligopoly
Studies
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Summary:Nathan and Neave (1989) presented an empirical assessment of the state of competition in several sectors of Canada's financial services industry, namely, banking, trust, and mortgage firms. This assessment was carried out by estimating the Panzar-Rosse (PR) statistic, using cross-sectional data for 1982, 1983, and 1984. On the basis of the value of this statistic, they concluded that banks usually appear to exhibit more competitive behavior than the other 2 sectors but that the data reject the hypothesis of monopolistic or oligopolistic behavior in any of the 3 industries examined. It is argued that none of these conclusions is supported by the results and that the PR (1987) statistic is generally inadequate for competitive assessment purposes in an oligopoly. At any rate, the statistical form of the test is not consistent with the use made of its results. Nathan and Neave reply that, even though Perrakis' theoretical results are flawed and have little relevance to the data they examined, his point that their estimating equations should be consistent with an underlying optimization model is accepted.
ISSN:0008-4085
1540-5982