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Industry and financial market concentration

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  • Gerasimos T. Soldatos

    (American University of Athens)

Abstract

This paper elaborates upon the correlation of the Lerner indexes in industry and financial market. It is found that the concentration in this market encourages the entry of firms in the non-financial sector, ceteris paribus. Since, concentration in industry affects concentration in banking too, because firm efficiency influences leverage decisions, an ad-hoc model of the dynamic interaction of the two indexes shows that the optimal market structures in both industry and banking are between perfect competition and monopoly. The use of after tax data in assessing the Lerner indexes empirically, can distort conclusions because the index responds positively to a tax rate change, and asymmetric tax changes can distort the relationship between industry and financial market concentration. Monetary and competition policies can influence concentration in the desired direction if any, but decision-making has to assess first if domestic industry concentration is desirable on grounds of global competition.

Suggested Citation

  • Gerasimos T. Soldatos, 2021. "Industry and financial market concentration," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(2), pages 275-289, June.
    • Handle: RePEc:spr:epolin:v:48:y:2021:i:2:d:10.1007_s40812-020-00179-2
    DOI: 10.1007/s40812-020-00179-2
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    More about this item

    Keywords

    Lerner index; Correlation between industry and financial market concentration; Monetary policy; Competition policy;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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