THE IMPLICATIONS OF MARKET STRUCTURE ANDBEHAVIOR FOR COMPETITION IN THE
This research explores the implications of market structure and behavior for competition in the investment banking industry. The investment banking industry is considered in an international context in this research, with the greatest emphasis placed on its functioning in Western Europe and North America. While the regulatory differentiation between investment banks and commercial banks is not highly significant in Western Europe, such regulatory constraints are critical in the United States (Walter and Smith, 1989). These regulatory distinctions, therefore, are reviewed in this research.
Market structure is typically defined in terms of: (1) seller concentration; (2) product differentiation; (3) barriers to entry; and (4) barriers to exit (Waterson, 1985). Seller concentration refers to both the (1) number of firms participating in a market, and (2) the size of those firms in relation to one another. Seller concentration is most often measured within the context of market share, although it is, at times, measured in the context of aggregate concentration, which may rely on sales, assets, value added, profits, employment, or any of a number of other indicators as the relevant variable (Waterson, 1985).
Product differentiation refers to the distinguishing between competing goods on the basis of their nonprice characteristics. Thus, products which are physically the same may be differentiated through branding, packaging, seller location, the level and quality of service, credit conditions, and other factors.
Barriers to entry refer to factors which make it difficult for new firms to enter a market (Waterson, 1985). There are three general types of entry barriers. These general types are as follows:
1. Cost barriers. Cost barriers to entry refer to the expenditures which must be made by a firm desiring to enter a market to acquire the chara...