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Banking Competition and Market Efficiency

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Author Info
Yanelle, Marie-Odile
Abstract

This paper analyzes competition among financial intermediaries in a set-up where financial intermediaries economize on duplicated monitoring (D. W. Diamond, 1984). The author analyzes two different games in which both direct trade and indirect trade are available. She shows that in general equilibrium outcomes are inefficient, so that Diamond's efficiency result is fragile. Intermediation may increase rather than decrease transaction costs. Disintermediation may also be an equilibrium. The author discusses the role played by the nonconvexities of banks' technology and that played by competition for deposits and loans. Copyright 1997 by The Review of Economic Studies Limited.

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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 64 (1997)
Issue (Month): 2 (April)
Pages: 215-39
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Handle: RePEc:bla:restud:v:64:y:1997:i:2:p:215-39

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  1. Robert M. Adams & Lars-Hendrik Röller & Robin C. Sickles, 2002. "Market Power in Outputs and Inputs: An Empirical Application to Banking," CIG Working Papers FS IV 02-33, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  2. Hans Gersbach, 2002. "Financial Intermediation and the Creation of Macroeconomic Risks," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  3. ROCHET, Jean-Charles & TIROLE, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  4. Frédérique Bracoud, 2002. "Sequential Models of Bertrand Competition for Deposits and Loans under Asymmetric Information," Game Theory and Information 0211002, EconWPA. [Downloadable!]
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  5. Eduardo Levy Yeyati & Alejandro Micco, 2003. "Concentration and Foreign Penetration in Latin American Banking Sectors: Impact on Competition and Risk," Business School Working Papers cinco, Universidad Torcuato Di Tella. [Downloadable!]
    Other versions:
  6. Peter Eso & Volker Nocke & Lucy White, 2007. "Competition for Scarce Resources," Economics Series Working Papers 365, University of Oxford, Department of Economics. [Downloadable!]
  7. Annick Bruggeman & Marie Donnay, 2003. "A monthly monetary model with banking intermediation for the euro area," Working Paper Series 264, European Central Bank. [Downloadable!]
  8. Mitchell Berlin & Loretta J. Mester, 1997. "Intermediation and vertical integration," Working Papers 97-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  9. Schnitzer, Monika, 1998. "On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies," CEPR Discussion Papers 2013, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2005. "Bank Mergers, Competition and Liquidity," Working Paper Series 182, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  11. Erkki Koskela & Rune Stenbacka, 2000. "Bank mergers and the fragility of loan markets," Finnish Economic Papers, Finnish Society for Economic Research, vol. 13(1), pages 3-18, Spring. [Downloadable!]
  12. Hans Gersbach, 2001. "The Dynamics of Deposit Insurance and the Consumption Trap," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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