5. Conclusion
The policy implications of the SCP hypothesis require that the consolidations activities should be monitored because concentration eliminates competition from the market and leads to market inefficiency i.e. monopoly profits. The implications of the SCP are important for banking industry in ASEAN for ongoing shift towards a more concentrated market structure. Moreover, there has also been an increase in banks’ profitability and a decrease in cost efficiency. These facts are alarming for antitrust policies if the banks in ASEAN are profitable through monopoly pricing. However, the traditional test of the SCP hypothesis may not be useful for analyzing the situation, owing to the identification issues.
In this study, we apply a different approach to test the SCP hypothesis that overcomes the issues with traditional methodology. Instead of relating market structure directly to the performance, we introduce the bank conduct as an intermediating variable between market structure and performance. We follow the procedure introduced by Baron and Kenny (1986) to examine the mediating effect of bank conduct. Accordingly, four conditions have been specified for the existence of a mediation effect: i) bank concentration influences the conduct of the banks, ii) the bank conduct affects the performance of the banks, iii) bank concentration affects the bank performance in absence of the bank conduct, and (iv) the impact of the bank concentration on the bank performance reduces with the inclusion of bank conduct in the estimation model. Additionally, the study employs an alternative procedure laid down in Goodman (1960), Sobel (1982), and MacKinnon et al. (1995) to test the indirect relationship between market structure and bank performance through bank conduct.
