As a bank-based country, Indonesia currently has more than 100 banks managing most of country's financial assets. In addition, there is also a large numbers of insurance companies operating in Indonesia. Despite the numbers of bank and insurance companies, market shares are dominated by only few big companies. Meanwhile, a plenty of smaller companies are competing for the remaining market shares. This paper investigates the market structure of banking and insurance industries, using market power and concentration ratio as main indicators. Panzar-Rosse H Statistics was employed to measure the market power and Herfindahl-Hirschmann Index (HHI) to measure market concentration. The result shows there are market power and high competition in Indonesian banking and insurance industry. These findings confirm the 'too-big-to-fail' theory, in which certain companies are so large and interconnected that this interconnection will, as a result, provides kind of 'incentive' for companies to take more risk since there is a possibility to shift the loss from shareholders to taxpayers.
|Number of pages||7|
|Journal||International Journal of Economic Research|
|Publication status||Published - 1 Jan 2017|
- Market power