The Canadian Banking Oligopoly
“A market situation in which control over the supply of a commodity is held by a small number of producers to sell”1, is the standard definition for the market structure of an oligopoly. As simple and as straightforward as the definition may read, an oligopoly is actually a rather complicated and multi-layered market model. In the next few pages of this report I will analyze the oligopoly of the Canadian banking industry and reveal the factors the oligopolists have to consider; type of product, strategic behavior and mutual interdependence, entry barriers, merger’s, some of the shortcomings of this market structure as well as the potential for profits.
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Although the various banks may offer a slightly different experience, they are essentially providing the same services with only minimal differences, certainly not enough to call them a differentiated oligopoly. For example, when comparing the basic account product provided by the banks the table below shows just how standardized the product is. Please note the very slight variances, if any at all.
Basic Bank Accounts offered5
“Big 5” bank Account Name Monthly
fee Rebate Debits per month Overdraft Protection fee
RBC Day to Day Account $4 free with an investment and credit card 15 $3/month
TD Value Account $3.95 free with a $1,500 minimum balance 10 $4/month
Scotiabank Basic Banking Account $3.95 N/A 12 $5/month
BMO Practical Plan Account $4 free with a $1,000 minimum balance 10 $2.50/month
CIBC Everyday Chequing Account $3.90 free with a $1,000 minimum balance 10 $5/month
Strategic Behaviour and Mutual Interdependence
With only a few banks truly having control of Canada’s banking industry, it is important for them to ensure that they are fully aware of what each other is doing to remain competitive. The oligopolist must consider how its rivals will react to any change in its price, output, product characteristics or advertising.2 To aid in the knowledge of what their competitors are doing, each of the “Big 5” have not only established their headquarters in the same city, the CEOs work literally within a few hundred meters of each other in downtown Toronto. This makes it easy for the banks to monitor each other.6 Due to the close existence of the banks, not only in geographic location, but also in the products, and services they provide and their characteristics and ideology, it is important to understand their strategic behaviour and mutual interdependence.
Strategically, each of the banks try to establish themselves somewhat separately from the others. The purpose for this is to differentiate the corporation so that they may meet a need or want of a consumer that the other banks do not, therefore, increasing their chance for increased profit. By visiting each of the “Big 5” websites and reading the “About Us” section it becomes apparent that each bank has created their very own strategic behaviour. The chart below5 demonstrates what I found.
“Big 5” bank Strategic Behaviour Description
RBC Corporate Banking Canada’s largest bank as measured by assets and market capitalization, and among the largest banks in the world, based on market capitalization.
TD Diversification Provides a full range of financial products and services to personal and small business customers. (Pesonal banking, commercial banking, financial services, TD America, TD Waterhouse, Asset Management, Ameritrade, Insurance and Securities.)
Scotiabank International Banking One of North America's leading financial institutions, and Canada's most international bank. They provide innovative financial products and services to individuals, small and...