The Efficiency Cost Of Market Power In The Banking Industry: A Test Of The "Quiet Life" And Related Hypotheses
AbstractTraditional concerns about concentration in product markets have centered on the social loss associated with the mispricing that occurs when market power is exercised. This paper focuses on a potentially greater loss from market power - a reduction in cost efficiency brought about by the lack of market discipline in concentrated markets. We employ data from the commercial banking industry, which produces very homogeneous products in multiple markets with differing degrees of market concentration. We find the estimated efficiency cost of concentration to be several times larger than the social loss from mispricing as traditionally measured by the welfare triangle. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Bibliographic InfoArticle provided by MIT Press in its journal The Review of Economics and Statistics.
Volume (Year): 80 (1998)
Issue (Month): 3 (August)
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Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Allen N. Berger & Timothy H. Hannan, 1994. "The efficiency cost of market power in the banking industry: a test of the "quiet life" and related hypotheses," Finance and Economics Discussion Series 94-36, Board of Governors of the Federal Reserve System (U.S.).
- Allen Berger & Timothy Hannan, 1994. "The Efficiency Cost of Market Power in the Banking Industry: A Test of the 'Quiet Life' and Related Hypotheses," Center for Financial Institutions Working Papers 94-29, Wharton School Center for Financial Institutions, University of Pennsylvania.
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