Oligopoly of Banks

1566 Words Apr 15th, 2014 7 Pages
BRITISH BANKS: CRACKING THE OLIGOPOLY

Student: Aruni Dileepa Wijeweera - 16639300
Student: Elie Gharib - 16443365
Student: Ying Sheng - 17903022

Lecturer: Dr. Neil Perry
Economics 200425
Due Date: 18th November 2013

United Kingdom (UK) banking industry started in 1694 with the establishment of Bank of England, with the main purpose of funding the war against France. Throughout the years and with the expansion of the banking industry, many private banks invaded the market and started their operations. During the twentieth century, large banks started to acquire or merge with small banks thus leading to a more concentrated market. (British Banking History Society)
UK banking industry is known by the “Big
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Banks in an oligopolistic industry prefer to have a common price policy, that is, a tacit agreement or understanding to charge similar prices. Examples of non-price competition consists product differentiation, advertising and loyalty schemes. A strong brand generates loyalty, which helps the ‘Big Four’ to maintain their existing customers and blocks the entry of new banks (Forster & Monger, 2003).
Product differentiation refers to the attempt by firms to provide services that are slightly different from their rivals. By exercising this, potential customers might have a belief that they have a preferred service, even though services provided by the bank may be no better than its rivals. This is why banks are heavily spending on advertising and promotion in order to attract and retain customers (Taylor & Frost, 2006).

Source: Financial Mail on Sunday, 31 August 2013
In oligopoly market, services are either differentiated or homogeneous (Taylor & Frost, 2006). In the banking industry, the range of services provided by the banks is very similar even though they attempt to differentiate their services by using non-price competition
Comparison of UK Big Four Credit Card Services
Bank Name
Annual Percentage Rate (APR)
Annual Fee
Balance Transfer
Balance Transfer
Rate
RBS
18.90%
£0
0% 0-28 months from opening the account
2.99%
HSBC
17.90%
£0
0% 0-23

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