ABSTRACT
This chapter examines commercial banking products and services using Contestable Markets Theory (CMT) as set forth in Baumol and W. J Baumol, J. C. Panzar, and R. D. Willig. CMT is far from being universally accepted as an improvement over the traditional structure-conduct-performance model. CMT does add to the body of knowledge by developing arguments as to why market structures other than perfectly competitive ones may be optimal when the perfect competition assumption of producer size is violated. The most complete manner to investigate commercial banking products would be in terms of the portfolio of products offered. Applying CMT to banking units is more involved than just examining banks since other financial institutions also compete for the customers in the financial service markets in question. The products produced are certainly homogeneous in nature. All depository institutions provide two intermediary services: time intermediation and denomination intermediation.
