Essays on competition in the Hong Kong banking market

Zou, Kailin 2014. Essays on competition in the Hong Kong banking market. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

The aim of the thesis is to investigate three banking issues related to competition, which are switching costs, collusion, and the competitive conditions in the Hong Kong banking sector during the period 1997 to 2012. For this purpose, a database consisting of an unbalanced panel of annual observations for 18 licensed banks incorporated in Hong Kong is used. This thesis comprises three empirical essays as follows: The first essay uses a structural model presented by Kim et al. (2003), which explores the significance and the magnitude of switching costs in Hong Kong’s bank loan market. Overall, I find that switching costs are significant in the Hong Kong bank loan market. The average point estimate of switching costs based on the entire sample is 0.1947. The results suggest that the existence of switching costs raises the price-cost margin by 52 basis points. Furthermore, the results also suggest that the estimated switching costs during the bad times are slightly higher than that in good times. On average, 2.54% of the customer’s added value is attributed to the lock-in effect generated by switching costs. The second essay measures the degree of collusion and the nature of the competitive conditions in the Hong Kong bank loan market using the conjectural variation approach. I jointly estimate a system of a log demand function, a pricing equation, and a trans-log cost system, and use the conjectural variation parameter to identify the degree of collusion. The estimated conjectural variation parameter is insignificant, which suggests that banks in Hong Kong operate in a competitive fashion in the loan market and the behaviour of the banks is consistent with a Nash-Bertrand equilibrium in price, with no significant evidence of collusion on pricing. The third essay investigates the degree of competition in the Hong Kong banking sector using the Panzar-Rosse approach. The novelty of this essay is to solve the problem of the system’s residuals correlation in the Panzar-Rosse model by jointly estimating equations using the SUR approach. My results suggest that the Hong Kong bank market can be characterized as monopolistic competition and the level of competition of interest market is higher than competition level of the non-interest market.

Item Type:	Thesis (PhD)
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Funders:	Julian Hodge Bursary
Date of First Compliant Deposit:	30 March 2016
Last Modified:	19 Mar 2016 23:52
URI:	https://orca.cardiff.ac.uk/id/eprint/70022

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