Extant studies treat the impact of entry on concentration, market structure and competition rather mechanically; with some even going further to naively identify concentration as an indicator of competition. This paper critically examines these contentions by studying the trends and determinants of concentration with a view to gaining an insight into the process of competition. The deregulation of domestic private banking industry in India, since the early 1990s, provides an opportunity for such a study. This paper is the first of its kind to identify a distinct pattern of change in the concentration ratio and explains its determinants in terms of a cubic form equation. The determinants of Herfindahl’s Concentration Ratio are number of firms, average asset size of the firms and their skewness. The study also points to a possible generalized pattern that market concentration follows upon deregulation of the industry.

The popular approaches for studying market concentration emerge from two perspectives:

• For the purpose of identifying market structure and market form; and
• For policy purposes such as antitrust laws and judgements.

The two shortcomings of these approaches are: Firstly, extant studies treat the impact of entry on concentration, market structure and competition rather mechanically; with some even going further to naively identify concentration as an indicator of competition. Secondly, in the case of antitrust laws, the relationship between concentration and monopoly is taken for granted and the judgements are pronounced about the market structure and form.

Neither of these approaches distinguishes between competition as a market form and competition as a process. Under the conditions of regulated markets, it is not possible to examine the process of competition because competition is either contrived by administered mechanisms or controlled by public monopolies. For the present study, the significance of concentration ratio lies in being able to analyze the banking industry in India. This is done with a view to understanding the process of competition unleashed by the deregulation of private banking industry. Accordingly, certain observations from the patterns of dynamics of the Herfindahl’s Concentration Ratio (H) are highlighted in an attempt to generalize the process of competition.

Applied Finance Journal, Entry, Reserve Bank of India (RBI), Structure-Conduct-Performance (S-C-P), telephone banking, Internet banking, Concentration, Process of Competition, Early Days, Deregulating, Private, Banking Industry.