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Spatial competition and market power in banking

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  • Richards, Timothy J.
  • Acharya, Ram N.
  • Kagan, Albert

Abstract

Banks in non-metropolitan areas compete in a spatially differentiated environment. Non-metro community banks have been insulated from increasing competition from metro banks due to their reliance on soft information in relationship lending. Proximity to borrowers, therefore, may be an important source of market power for non-metro community banks. This paper estimates a structural model of the supply and demand of banking services in which pricing power is allowed to depend explicitly on the distance between rival banks. A spatial autoregressive econometric model shows that approximately 38.0% of economic surplus earned by firms in non-metropolitan banking in the upper midwest is due to spatial market power.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 60 (2008)
Issue (Month): 5 ()
Pages: 436-454

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Handle: RePEc:eee:jebusi:v:60:y:2008:i:5:p:436-454

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

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Keywords: Banking Market power Non-metropolitan markets Spatial econometrics;

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References

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Cited by:
  1. David VanHoose, 2013. "Implications of Shifting Retail Market Shares for Loan Monitoring in a Dominant-Bank Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(3), pages 291-316, 07.
  2. Acharya, Ram N. & Kagan, Albert & Richards, Timothy J., 2006. "Profitability and Long-term Survival of Community Banks: Evidence from Texas," 2006 Annual meeting, July 23-26, Long Beach, CA 21453, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Maureen Kilkenny, 2010. "Urban/Regional Economics And Rural Development," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 449-470.
  4. Coccorese, Paolo & Pellecchia, Alfonso, 2013. "Multimarket contact, competition and pricing in banking," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 187-214.

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