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Bank-level estimates of market power

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Author Info

  • Brissimis, Sophocles N.
  • Delis, Manthos D.

Abstract

The aim of this study is to provide an empirical methodology for the estimation of market power of individual banks. The new method employs the well-known model of Panzar and Rosse (1987) and proposes its estimation using the local regression technique. Local regression yields coefficient estimates equal to the number of observations and, thus, market power is estimated for each bank at each point in time. In addition, a number of restrictive assumptions regarding the properties of the production function of banks are relaxed. A panel of banks from transition countries that has been recently employed by Delis (2010) to obtain market power estimates using the Panzar and Rosse model at the country level is used for comparative purposes. We find that country averages of the bank-level results exhibit a very close relationship with standard, industry-level Panzar-Rosse estimates. However, the empirical results suggest that many banks in countries with fairly competitive banking systems deviate significantly from the country averages and that market power varies substantially across banks in each country.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Operational Research.

Volume (Year): 212 (2011)
Issue (Month): 3 (August)
Pages: 508-517

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Handle: RePEc:eee:ejores:v:212:y:2011:i:3:p:508-517

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Web page: http://www.elsevier.com/locate/eor

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Keywords: Market power Bank-level Local regression;

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References

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Cited by:
  1. Benjamin Miranda Tabak & Guilherme Maia Rodrigues Gomes & Maurício da Silva Medeiros Júnior, 2012. "The Impact of Market Power at Bank Level in Risk-taking: the Brazilian case," Working Papers Series 283, Central Bank of Brazil, Research Department.
  2. Nguyen, My & Skully, Michael & Perera, Shrimal, 2012. "Bank market power and revenue diversification: Evidence from selected ASEAN countries," Journal of Asian Economics, Elsevier, vol. 23(6), pages 688-700.
  3. Dimitrios Sideris, 2011. "Optimum currency areas, structural changes and the endogeneity of the OCA criteria: evidence from six new EU member states," Applied Financial Economics, Taylor & Francis Journals, vol. 21(4), pages 195-206.
  4. Vasilis Droucopoulos & Panagiotis Chronis, 2010. "“Assessing market dominance”: a comment and an extension," Working Papers 109, Bank of Greece.
  5. Cipollini, Andrea & Fiordelisi, Franco, 2012. "Economic value, competition and financial distress in the European banking system," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3101-3109.

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