Market structure and competitive behavior of China’s P2P lending industry

This paper calculates the industrial concentration ratio (CR) and Herfindahl-Hirschman Index (HHI) of China’s P2P lending industry and explores the competitive behavior between P2P lending platforms. We find the concentration degree of the industry is very low in June 2015, which implies the competition between lending platforms is extremely fierce and the development mode is relatively extensive at that time. After a short period of decline, the concentration degree starts to increase in April 2016 due to the government’s regulation. In April 2017, the market structure of the industry has changed to oligopoly. Even so, to make the industry develop healthily, strict regulation is still needed. In addition, we also find it is the relative strength of network externality decides which sides the platforms make subside to. Finally, we find the reputation plays an important role in platform development. If a platform has good reputation, it tends to raise its service fees and its one side market share will increase with the growth of the other side market capacity. This explains the phenomenon of “The-Winner-Takes-All” from another perspective. Since reputation is so important in the development of P2P lending platform, we suggest building a reputation management mechanism.