Competitiveness in Turkish Banking: 2002-2011

Using a novel approach, we derive “shadow unrealized profit scores” as well as “shadow input-output prices” for each year and bank in the Turkish banking sector from 2002 to 2011. We demonstrate that these scores operationalize the Hicksian concept of “monopolistic quiet life.” We show that the Turkish banking sector came closer to the “zero profit condition” over time. Similarly, the variances of “shadow prices” exhibit a significant decline over our sample period, indicating a closer approximation to the “law of one price”. We conclude that there are differences in profit efficiency between banks with different ownership types and sizes. In particular, state-owned banks display the lowest inefficiency while foreign-owned banks the highest. Finally we find total asset and branch network sizes are positively related to profit efficiency, implying important scale and scope economies.  

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