infonet-economy

How best to measure banking competition? The empirical banking literature typically resorts to well-known concentration measures such as the Herfindahl–Hirschman index, or performance indicators like the Lerner or Boone indexes. While these have their merits, none of them explicitly takes into account that banks may actively compete with some banks but not with others. This chapter presents micro evidence on the determinants of such dyadic banking competition, and argues that this concept can advance our understanding of how banking competition affects firms’ access to credit.