New Extended Dynamic Market Models: an Application to Korean Commercial Banking

The traditional model is extended by adding changes in long run equilibrium concentration, using a “cost of adjustment” methodology, for the Korean banking industry data. The primary interest is to estimate empirically the speed of adjustment, not only when concentration deviates from its long run equilibrium, but also when there is change in the concentration of long run equilibrium itself. Restrictions on the shifts in the long run equilibrium are imposed on this equation. The models are tested for the restrictions to ascertain which model is appropriate to the Korean banking industry. The major findings are that the restrictions on shifts in the long run are necessary to the model, that the GMS model is appropriate, and that the adjustment speed is very rapid in the Korean commercial banking industry.