Abstract
There are three hypotheses about structure-conduct-performance paradigm; traditional hypothesis, differentiation hypothesis and efficiency hypothesis. The objective of this research is to examine how strong the influence of market structure in banking performance. This study uses the fix effect model by applying the Weiss model. This research also tries to prove whether market share and concentration in the banking industry as a proxy to efficiency. The result of the panel data analysis conducted on a sample of 15 biggest commercial banks over the period from 2009 to 2018 is strongly reject the traditional hypothesis. The empirical findings suggest that market concentration has a negative correlation between profitability, it means that Indonesian banking industry strongly reject the traditional hypothesis and support efficiency hypothesis and there is a positive correlation between market share and profitability, supports the differentiation hypothesis.
Highlights
The role of banks is very important in the economy, especially in the monetary payment system
The market structure of the Indonesian banking industry in this study is known by calculating the concentration ratios of the 4 biggest banks
From the calculation of the concentration ratio above in table 2, based on the J.S oligopoly criteria Bain, the market structure of the Indonesian banking industry for the period 2009-2018 is in the form of low moderate concentration oligopolies or type IV oligopolies and even in the share of thirdparty funds (DPK) close to high moderate concentration oligopolies with CR4 values reaching 50 percent or more
Summary
The role of banks is very important in the economy, especially in the monetary payment system. The source of the loan funds is obtained from the owners of the funds deposited in the bank, namely surplus units that entrust their funds to be managed by banks. In this case, the banking sector has played a role as a diversion of assets from surplus units (lenders) to deficit units (borrowers). This role shows that bank financial institutions can convince their customers that funds stored as products with varying levels of liquidity, will be returned when they are determined according to their needs and interests. Banks can reduce transaction costs with the range of services, banks can bring together owners and users of capital and facilitate transaction needs between parties who need each other. (Warjiyo, 2007)
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