Do Islamic banks have greater market power?
AbstractThe aim of this paper is to investigate whether Islamic banks have greater market power than con-ventional banks. An Islamic bank, for example, might enjoy enhanced market power if a captive clientele adhering to religious principles permits it to charge higher prices. To measure market power, we compute Lerner indices for a sample of banks from 17 countries where Islamic and conventional banks coexist. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks over the period 2000-2007. When including control variables, regression of Lerner indices even suggests that Islamic banks have less market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are no less competitive than conventional banks. Thus, any reduced market power of Islamic banks can be attributed to differences in norms and incentives.
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Bibliographic InfoPaper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 2/2010.
Length: 25 pages
Date of creation: 26 Feb 2010
Date of revision:
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Islamic banks; Lerner index; bank competition;
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 (France).
- Laurent Weill, 2010. "Do Islamic Banks Have Greater Market Power?," Working Papers 548, Economic Research Forum, revised Sep 2010.
- 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-2010-04-04 (All new papers)
- NEP-ARA-2010-04-04 (MENA - Middle East & North Africa)
- NEP-BAN-2010-04-04 (Banking)
- NEP-COM-2010-04-04 (Industrial Competition)
- NEP-CWA-2010-04-04 (Central & Western Asia)
- NEP-EFF-2010-04-04 (Efficiency & Productivity)
- NEP-MIC-2010-04-04 (Microeconomics)
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