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. As the definition of the term indicates, in order to be considered an oligopoly, there are to be only a small number of producers. More specifically, the structure calls for “a few large producers”.2 The textbook, Microeconomics by McConnell, Brue, Flynn and Barbiero goes on to indicate that any industry which uses the term Big Three, Big Four, etc. would be considered an oligopoly. The Canadian banking industry is well known by the “Big 5” banks: RBC (Royal Bank of Canada), TD (Toronto-Dominion Bank), Scotiabank (Bank of Nova Scotia), BMO (Bank of Montreal) and CIBC (Canadian Imperial Bank of Commerce). To further confirm the fact that the “Big 5” are indeed an oligopoly, combined, they account for more than 85 % of the banking industry in Canada.3 Let us now begin the analysis.

Type of Product - Homogeneous Oligopoly Canada’s banking industry produces standardized products, therefore classifying the industry as a homogeneous oligopoly. The Encyclopedia of Business states that standardized products are developed when “the major firms produce identical products, such as steel bars or aluminum ingots.”4 The website goes on to state that prices tend to be uniform in