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Assessing market power in the U.S. commercial banking industry under deregulation

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  • Chang, Shun-Chiao
  • Chang, Jui-Chuan Della
  • Huang, Tai-Hsin

Abstract

This study attempts to investigate market power in the U.S. commercial banking industry since the U.S. government began to deregulate the banking sector in the early 1990s using the static Bresnahan–Lau model (SBLM) and dynamic Bresnahan–Lau model with error corrections (DBLEC). In particular, panel unit root and panel cointegration techniques are utilized to examine the dynamic model. The empirical results of the SBLM show that the banking industry is highly competitive. The empirical results of DBLEC also suggest that the commercial banking industry is close to being perfectly competitive in the short run. By contrast, the adjustment speeds of the supply and demand sides towards the long-run equilibrium are quite slow in that market, which implies that the U.S. commercial banks enjoy a certain degree of long-run market power.

Suggested Citation

  • Chang, Shun-Chiao & Chang, Jui-Chuan Della & Huang, Tai-Hsin, 2012. "Assessing market power in the U.S. commercial banking industry under deregulation," Economic Modelling, Elsevier, vol. 29(5), pages 1558-1565.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1558-1565
    DOI: 10.1016/j.econmod.2012.05.007
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    More about this item

    Keywords

    Market power; Bresnahan–Lau model; DBLEC; Panel cointegration;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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