And Business

This paper investigates whether competition in the Japanese banking sector has improved in the last quarter of the 20 century. By estimating the first order condition of profit maximization, together with the cost function and the inverse demand function, we found that competition had improved, especially in the 1970s and in the first half of the 1980s. The results fail to reject a Cournot oligopoly for city banks for most of the period, while they do reject it for regional banks for the overall period. This suggests that competition among city banks was stronger than that among regional banks. JEL Classification number: G21, L13 Keyword: Japanese banks, degree of competition, loan market. * An earlier version of this paper was presented at the Autumn Meeting of the Japanese Economic Association, Contract Theory Workshop, Monetary Economics Workshop, and the Center for Economic Institutions at Hitotsubashi University. The authors are grateful for comments made by Tatsuya Kikutani, Kohsuke Oya, Seki Obata, Hideshi Itoh, and Juro Teranishi. Uchida acknowledges the financial support from the Zengin Foundation for Studies on Economics and Finance and Wakayama University Research Fund. † Corresponding author: Graduate School of Economics, Osaka University, 1-7, Machikaneyama, Toyonaka, 560-0043 Japan. Phone: +81-6-6850-5223. Fax: +81-6-6850-5274. E-mail: [email protected]