Measuring Market Power in the Banking Industry in the Presence of Opportunity Cost
AbstractA conjectural variations model is developed to measure market power in the banking industry. Unlike previous studies, which use complete cost function specifications in the modelling framework, this study defines marginal cost based on an opportunity cost, which is represented by the interest rate on minimum reserves offered by the monetary authorities in a country. Deposits with the monetary authorities are considered to be an alternative use of available funds that are usually allocated to loans. The estimates of market power in the banking industry in Cyprus, using the proposed model, reject the monopoly hypothesis.
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Bibliographic InfoPaper provided by Central Bank of Cyprus in its series Working Papers with number 2013-01.
Length: 40 pages
Date of creation: Jun 2013
Date of revision:
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Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1
More information through EDIRC
market power; conjectural variations; interest rates; opportunity cost.;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-31 (All new papers)
- NEP-BAN-2013-08-31 (Banking)
- NEP-COM-2013-08-31 (Industrial Competition)
- NEP-IND-2013-08-31 (Industrial Organization)
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