The Panzar-Rosse Revenue Test and Market Power in Banking: An Empirical Illustration

Sherrill Shaffer, Laura Spierdijk

Research output: Chapter in Book/Report/Conference proceedingChapterAcademicpeer-review

4 Citations (Scopus)


Although the theoretical literature has shown that the Panzar–Rosse H-statistic fails as a measure of market power, it is still a widely used statistic in empirical banking studies. Such studies still rely on the erroneous belief that H > 0 is inconsistent with significant market power. This chapter provides empirical evidence against the latter belief by analyzing a US banking duopoly. We find “competitive” estimates of H but, consistent with a priori expectations, non-competitive outcomes according to an alternate measure of competition, the Lerner index. Moreover, our bank-specific estimates of H are mutually inconsistent, suggesting additional problems with the Panzar–Rosse test.
Original languageEnglish
Title of host publicationHandbook of Competition in Banking and Finance
EditorsJacob A. Bikker, Laura Spierdijk
Place of PublicationCheltenham
PublisherEdward Elgar Publishing
Number of pages19
ISBN (Electronic)9781785363306
ISBN (Print)9781785363290
Publication statusPublished - 2017

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