Competition in Finnish banking : Two tests

This paper extends Bresnahan's (1982) test of competition to the two-product case. Applying this extension, as well as Bresnahan's original one-product test to the Finnish banking industry before and after the deregulation of financial markets produces some interesting results. With the two product model, a degree of imperfect competition is identified both in deposit and loan markets in the latter half of 1980s. The one product test, on the other hand, indicates that the competition was fairly intense before this. Besides the estimates of the degree of competition, 1 find evidence of economies of scope in deposit-taking and lending activities of banks. In addition, the paper discusses the concepts of price and output in banking.