Divestment and bank competition

Saha, Bibhas and Sensarma, Rudra (2004) Divestment and bank competition. Journal of Economics, 81 (3). pp. 223-247. ISSN 0931-8658

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We determine optimal divestment (partial privatization) and entry in banking in the context of a mixed oligopoly. When banks compete in deposits, greater entry is associated with higher divestment. However, social welfare improves with entry only when the private entrants are more efficient than the public bank. Further, when banks compete in interest rates with differentiated products, the public bank’s behavior resembles that of a price leader and it earns less profit than the private bank, if government holding in the public bank is sufficiently high. Competition becomes excessive in this case, and social welfare maximization requires greater divestment.

Item Type: Article
Faculty \ School: Faculty of Social Sciences
Faculty of Social Sciences > School of Economics
Depositing User: Vishal Gautam
Date Deposited: 01 Mar 2004
Last Modified: 24 Oct 2022 02:46
URI: https://ueaeprints.uea.ac.uk/id/eprint/16584
DOI: 10.1007/s00712-003-0025-y

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