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Measuring Market Power in Input and Output Markets: An Empirical Application to Banking

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  • Robert M. Adams

    (U. S. Department of Justice)

  • Lars-Hendrik Roeller

    (Wissenschaftszentrum Berlin)

  • Robin C. Sickles

    (Rice University)

Abstract

This paper develops and estimates a model of market conduct in the US banking industry during the 1990s. Competition in both output and factor markets is measured in a static Cournot model in the spirit of Bresnahan (1989), Shaffer (1991,1994a), Neven and Roeller (1997), and others. Banks can exert market power in loans as well as in deposit markets. Previous studies on banking competition center on the structure conduct hypothesis, where reduced form models with market concentration measures are used to estimate the degree of competition. We consider a disaggregated structural model of bank loan markets, where bank's competitive behavior is measured in input and output markets. Our results indicate that the standard model which measures only output market behavior is potentially biased.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1466.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1466

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  1. Sherrill Shaffer, 1994. "Evidence of monopoly power among credit card banks," Working Papers 94-16, Federal Reserve Bank of Philadelphia.
  2. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  3. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Molyneux, Philip & Thornton, John & Michael Llyod-Williams, D., 1996. "Competition and market contestability in Japanese commercial banking," Journal of Economics and Business, Elsevier, Elsevier, vol. 48(1), pages 33-45, February.
  5. Suominen, Matti, 1994. " Measuring Competition in Banking: A Two-Product Model," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 96(1), pages 95-110.
  6. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 97-1, New York University, Leonard N. Stern School of Business-.
  7. Altunbas, Yener & Molyneux, Philip, 1996. "Cost economies in EU banking systems," Journal of Economics and Business, Elsevier, Elsevier, vol. 48(3), pages 217-230, August.
  8. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
  9. Shaffer, Sherrill & DiSalvo, James, 1994. "Conduct in a banking duopoly," Journal of Banking & Finance, Elsevier, Elsevier, vol. 18(6), pages 1063-1082, December.
  10. Allen N. Berger & Timothy H. Hannan, 1987. "The price-concentration relationship in banking," Research Papers in Banking and Financial Economics, Board of Governors of the Federal Reserve System (U.S.) 100, Board of Governors of the Federal Reserve System (U.S.).
  11. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  12. Shaffer, Sherrill, 1993. "A Test of Competition in Canadian Banking," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(1), pages 49-61, February.
  13. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 35(4), pages 443-56, June.
  14. Hannan, Timothy H., 1991. "Bank commercial loan markets and the role of market structure: evidence from surveys of commercial lending," Journal of Banking & Finance, Elsevier, Elsevier, vol. 15(1), pages 133-149, February.
  15. Dansby, Robert E & Willig, Robert D, 1979. "Industry Performance Gradient Indexes," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 249-60, June.
  16. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 1-9, April.
  17. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 938-45, September.
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Cited by:
  1. Astrid A. Dick, 2002. "Demand estimation and consumer welfare in the banking industry," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-58, Board of Governors of the Federal Reserve System (U.S.).

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