Do Islamic Banks Have Greater Market Power?
AbstractThe aim of this paper is to investigate whether Islamic banks have greater market power than conventional banks. Indeed Islamic banks may benefit from a captive clientele, owing to religious principles, which would be charged greater prices. To measure market power, we compute Lerner indices on a sample of banks from 17 countries in which Islamic and conventional banks coexist over the period 2000–2007. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks. When including control variables, regression of Lerner indices even suggests that Islamic banks have a lower market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are not less competitive than conventional banks. The lower market power of Islamic banks can be explained by their different norms and their different incentives.
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Bibliographic InfoPaper provided by Economic Research Forum in its series Working Papers with number 548.
Length: 16 pages
Date of creation: Sep 2010
Date of revision: Sep 2010
Publication status: Published by The Economic Research Forum (ERF)
Other versions of this item:
- Laurent Weill, 2009. "Do Islamic Banks Have Greater Market Power ?," Working Papers of LaRGE Research Center 2009-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
- Weill, Laurent, 2010. "Do Islamic banks have greater market power?," BOFIT Discussion Papers 2/2010, Bank of Finland, Institute for Economies in Transition.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-09 (All new papers)
- NEP-ARA-2010-10-09 (MENA - Middle East & North Africa)
- NEP-COM-2010-10-09 (Industrial Competition)
- NEP-MIC-2010-10-09 (Microeconomics)
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