Competitiveness Of The Commercial Credit Market: Measuring Market Behavior in Mexico

Abstract

Competitiveness in the commercial credit market is an essential characteristic that generates lower interest rates and allows people a greater opportunity to smooth their consumption over time. However, international reports argue that the Mexican credit market is not competitive, which has limited its benefits. In order to generate greater competitiveness in the sector, the Federal Government in Mexico undertook a Financial Reform in 2014. This research takes elements from the Panzar & Rosse model (PR) and the Sullivan approach (SA), two methodologies among industrial organization theory, in order to identify if the commercial credit market in Mexico is competitive. One the one hand, PR indicates how changes in inputs' prices can affect the equilibrium revenues for institutions and based on this determine the market structure. On the other hand, SA uses the PR model but simplifies the analysis to determine the minimum number of firms required for having a competitive market. Based on the available data, this thesis follows the SA and analyzes the market structure of credit institutions in credit cards, personal loans, payroll loans, auto loans, and mortgages, separately. The results will allow testing the null hypothesis of a monopolistic structure, and therefore the non-existence of a perfectly competitive market. Based on the results, public policy reforms are suggested in order to make the regulation and measurement of commercial credit competition more efficient.