The banking sector in Southern Africa: a test of the structure–performance hypothesis
by Charles C. Okeahalam
International Journal of Management and Decision Making (IJMDM), Vol. 5, No. 2/3, 2004

Abstract: The structure-conduct-performance (SCP) framework is underpinned by two competing hypotheses which attempt to explain the influence of concentration on pricing. The structure–performance hypothesis (SPH) argues that the positive correlation that exists between market concentration and profitability is an outcome of non- competitive pricing. However, the efficient structure hypothesis (ESH) argues that the positive correlation between market concentration and profitability occurs as a result of the higher efficiency of firms with dominant market shares. In this paper, an analysis is carried out on the banking industry of the Common Monetary Area (CMA) of Southern Africa to assess whether the level of concentration influences the pricing of retail banking products. The results suggest that the pricing of retail banking products in the CMA fits with the SPH. Policy implications suggest a need for greater competition and regulatory reform. The key managerial implication is that industry structure needs to be carefully considered when attempting to assess the level of performance of firms and their management.

Online publication date: Sat, 25-Sep-2004

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