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The social costs of bank market power: Evidence from Mexico

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  • Solís, Liliana
  • Maudos, Joaquín

Abstract

This paper estimates the social costs of market power (Harberger's triangle) in the Mexican banking system over the period 1993-2005. It also tests the so-called "quiet life" hypothesis which postulates a negative effect of market power on bank management efficiency. The social cost attributable to market power in 2005 is 0.15% of GDP, while that deriving from the cost (profit) inefficiency of banking management is 0.021% (0.075%) of GDP. The results allow us to reject the quiet life hypothesis in the deposits market. However, market power in the setting of the interest rate on loans has a negative effect on cost efficiency. Journal of Comparative Economics 36 (3) (2008) 467-488.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 36 (2008)
Issue (Month): 3 (September)
Pages: 467-488

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Handle: RePEc:eee:jcecon:v:36:y:2008:i:3:p:467-488

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Banking Market power Cost efficiency Profit efficiency Welfare loss;

References

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Citations

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Cited by:
  1. Zuzana Fungacova & Laurent Weill, 2010. "How Market Power Influences Bank Failures Evidence from Russia," Working Papers of LaRGE Research Center 2010-08, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  2. Fungácová, Zuzana & Solanko, Laura & Weill, Laurent, 2013. "Does bank competition influence the lending channel in the euro area?," BOFIT Discussion Papers 17/2013, Bank of Finland, Institute for Economies in Transition.
  3. Joaquín Maudos Villarroya & Liliana Solís, 2009. "The determinants of net interest income in the Mexican banking system: an integrated model," Working Papers. Serie EC 2009-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Fungáčová, Zuzana & Pessarossi, Pierre & Weill, Laurent, 2013. "Is bank competition detrimental to efficiency? Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 121-134.
  5. Maudos, Joaquín & Solís, Liliana, 2011. "Deregulation, liberalization and consolidation of the Mexican banking system: Effects on competition," Journal of International Money and Finance, Elsevier, vol. 30(2), pages 337-353, March.
  6. Alin Marius Andrieş & Bogdan Căpraru, 2012. "Competition and efficiency in EU27 banking systems," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(1), pages 41-60, July.
  7. Simpasa, Anthony, 2010. "Characterising market power and its determinants in the Zambian banking indudstry," MPRA Paper 27232, University Library of Munich, Germany.
  8. Williams, Jonathan, 2012. "Efficiency and market power in Latin American banking," Journal of Financial Stability, Elsevier, vol. 8(4), pages 263-276.

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