This paper analyses the price-concentration relationship for the Brazilian banking industry. Interest rate on loans proxies for price and the Herfindahl-Hirschman index proxies for concentration. A positive price-concentration relationship may be associated with anti-competitive behaviour while a negative one may reflect banks passing scale efficiency gains on to consumers. Berger & Hannan (1989) found a positive relationship for the US banking sector using a geographical concept of market. Due to institutional differences between the Brazilian and the US banking industries, this paper uses a loan category-based concept of market to find no relationship between interest rate on loans and concentration.
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number
62.