Entry Deregulation and Banking Market Competition: The Indian Experience

Existing theoretical and empirical literature do not unambiguously support the hypothesis that entry necessarily fosters competition. Entrant firms may strategically differentiate their products to avoid unbridled competition with incumbents. Given that there is considerable scope for product differentiation in service industries like banking, we undertake a case study of the impact of entry deregulation on competition in the Indian banking system. The issue is especially of interest since entry deregulation has become an important mechanism for generating competition in the banking system in many developing countries.