Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, August 3, 2011

Market Power, Efficiency and Performance of Indonesian Banks

Posted by D. Daniel Sokol

Fadilla Dwi Ardianty, Universitas Indonesia and Viverita Viverita, University of Indonesia (UI) - Graduate School of Management, Faculty of Economics discuss Market Power, Efficiency and Performance of Indonesian Banks.

ABSTRACT:This study aims to examine the existence of the two common hypothesis in banking industry, i.e: the Structure Conduct Performance (SCP) Hypothesis and the Efficient Structure (EFS) Hypothesis by analyzing the impact of market power and efficiency on performance of public banks in Indonesia for the period of 2003-2009. The estimation of efficiency is obtained by using two difference approaches: a parametric Stochastic Frontier Analysis (SFA) and non-parametric Data Envelopment Analysis (DEA). Findings of the study support the Structure Conduct Performance hypothesis, where market power is the most significant factor that influences banking performance. Furthermore, the results also support a quiet life hypothesis where the banks enjoy the advantages of market power in terms of foregone revenues or cost savings.

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