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Market power in outputs and inputs: an empirical application to banking

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Abstract

This paper provides evidence on the empirical separability of input and output market imperfections. We specify a model of banking competition and simultaneously estimate bank conduct in output (loan) and input (deposit) markets. Our results suggest that firms display some degree of non-competitive behavior in both the loan and the deposit markets. Moreover, we find that the input side and the output side are empirically separable, that is, the measurement of market power on one side of the market is not affected by assuming that the other side of the market is perfectly competitive. Our results suggest that empirical studies of market power that concentrate on either the input side or the output side are not subject to significant misspecification error.

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  • Robert M. Adams & Lars-Hendrik Roller & Robin C. Sickles, 2002. "Market power in outputs and inputs: an empirical application to banking," Finance and Economics Discussion Series 2002-52, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2002-52
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    Cited by:

    1. Elizabeth K. Kiser, 2004. "Modeling the whole firm: the effect of multiple inputs and financial intermediation on bank deposit rates," Finance and Economics Discussion Series 2004-07, Board of Governors of the Federal Reserve System (U.S.).
    2. Tomás Gómez Rodríguez & Humberto Ríos Bolívar & Adriana Zambrano Reyes, 2018. "Competition and market structure of the banking sector in Mexico," Contaduría y Administración, Accounting and Management, vol. 63(1), pages 5-6, Enero - M.
    3. repec:zbw:bofrdp:2008_004 is not listed on IDEAS
    4. Tsionas, Mike G., 2020. "Directional technology distance functions through duality," Economics Letters, Elsevier, vol. 190(C).
    5. Molnár, József, 2008. "Market power and merger simulation in retail banking," Bank of Finland Research Discussion Papers 4/2008, Bank of Finland.
    6. Gaspar Núñez Rodríguez, 2018. "Matriz de contabilidad social y análisis de sectores productivos en México," Contaduría y Administración, Accounting and Management, vol. 63(1), pages 7-8, Enero - M.
    7. Stanhouse, Bryan & Ingram, Matthew, 2007. "A computational approach to the optimal structure of bank input prices," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 439-453, February.
    8. Molnár, József, 2008. "Market power and merger simulation in retail banking," Bank of Finland Research Discussion Papers 4/2008, Bank of Finland.
    9. Tomás Gómez Rodríguez & Humberto Ríos Bolívar & Adriana Zambrano Reyes, 2018. "Competencia y estructura de mercado del sector bancario en México," Contaduría y Administración, Accounting and Management, vol. 63(1), pages 3-4, Enero - M.
    10. Jens Forssbæck & Choudhry Tanveer Shehzad, 2015. "The Conditional Effects of Market Power on Bank Risk—Cross-Country Evidence," Review of Finance, European Finance Association, vol. 19(5), pages 1997-2038.
    11. Juan Fernández de Guevara & Joaquín Maudos & Francisco Pérez, 2005. "Market Power in European Banking Sectors," Journal of Financial Services Research, Springer;Western Finance Association, vol. 27(2), pages 109-137, April.
    12. Wang, Xiaodong & Han, Liang & Huang, Xing, 2020. "Bank competition, concentration and EU SME cost of debt," International Review of Financial Analysis, Elsevier, vol. 71(C).
    13. Gerasimos T. Soldatos & Erotokritos Varelas, 2023. "Are Banks Too Many? A Theoretical Possibility and a Policy Issue," Journal of Economic Analysis, Anser Press, vol. 2(1), pages 36-52, February.

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    Keywords

    Banks and banking; Markets;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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