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Spatial Competition and Market Power in Banking

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Author Info
Richards, Timothy J.
Acharya, Ram N.
Kagan, Albert
Abstract

Banks in non-metropolitan areas compete in a spatially-differentiated environment. Particularly with the advent of electronic banking services, however, there is some question as to how much market power is conferred by spatial separation from rivals. 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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Paper provided by International European Forum on Innovation and System Dynamics in Food Networks in its series 2007 1st Forum, February 15-17, 2007, Innsbruck, Austria with number 6566.

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Date of creation: 2007
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Handle: RePEc:ags:iefi07:6566

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Web page: http://uf.ilb.uni-bonn.de/innovation2007
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Keywords: banking; market power; non-metropolitan markets; spatial econometrics; Community/Rural/Urban Development; Financial Economics; C21; D43; G21; L13;

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