Testing for bank competition in Nigeria: a conjectural variation approach

Abstract

The Nigerian banking system has over the past decade experienced significant and rapid structural changes, with a lot of important effects on the degree of competitiveness of the banking industry using firm level balance sheet and income statement data for the period 1997 to 2001. We adopt the conjectural variation approach for the analyses of competition. In this perspective, we estimate a simultaneous equation model, formed by a cost equation and a supply equation, the latter containing a behavioral parameter to identify and assess the market conduct of banks. Our finding is that the estimated degree of competition is usually lying between the perfectly competitive and perfectly collusive values, but above the Cournot values indicating a fairly competitive pattern of behaviour. Large banks have been characterized by more competitive conduct. Also, region-wide and Lagos/West regional banks exhibit stronger competitive conduct. African Journal of Economic Policy Vol. 9(2) 2002: 21–50