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Explaining Market Power Differences In Banking: A Cross-Country Study

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  • Amparo Nagore

    (Universitat de València)

  • Joaquín Maudos Villarroya

    (Instituto Valenciano de Investigaciones Económicas)

Abstract

This paper presents evidence on the impact of bank-specific, regulatory, institutional, macro and financial development variables on competition in banking, using information at both national and bank level. With this aim, Lerner indices of market power are estimated using a sample of 10,479 annual observations over the period 1995-99 across 58 countries. Results show that although bank-specific characteristics explain a substantial proportion of market power, market structure variables and, above all, the level of financial development also help to explain the differences observed in the levels of banking competition. Regulatory impediments to competition are not significant when controlling for financial development. Este artículo presenta evidencia del impacto que las variables específicas de cada banco, las regulatorias, institucionales, macroeconómicas y de desarrollo financiero ejercen sobre la competencia bancaria, utilizando información tanto a escala nacional como a nivel de empresa. Con este objetivo, se estiman índices de Lerner de poder de mercado utilizando 10.479 observaciones durante el periodo de 1995-99 para una muestra de 58 países. Los resultados muestran que, aunque las características específicas de cada banco explican una parte sustancial del poder de mercado (especialmente el tamaño y la eficiencia), las variables de estructura del mercado, y, sobretodo, el nivel de desarrollo financiero también ayudan a explicar las diferencias observadas en los niveles de competencia bancaria. Las barreras regulatorias a la competencia no son significativas cuando se controla por desarrollo financiero.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2005-10.

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Length: 34 pages
Date of creation: Apr 2005
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasec:2005-10

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Keywords: banking; market power Banca; poder de mercado;

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References

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Cited by:
  1. J.A. Bikker & Laura Spierdijk & P. Finnie, 2007. "The impact of market structure, contestability and institutional environment on banking competition," Working Papers 07-29, Utrecht School of Economics.
  2. Jacob A. Bikker & Dirk W.G.A. Broeders & Jan de Dreu, 2007. "Stock market performance and pension fund investment policy: rebalancing, free float, or market timing?," DNB Working Papers 154, Netherlands Central Bank, Research Department.
  3. Zhang, Qiong & Yang, Hangjun & Wang, Qiang & Zhang, Anming, 2014. "Market power and its determinants in the Chinese airline industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 1-13.
  4. J.A. Bikker & Laura Spierdijk, 2009. "Measuring and explaining competition in the financial sector," Working Papers 09-01, Utrecht School of Economics.

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