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A Structural Empirical Analysis of Retail Banking Competition: the Case of Hungary

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Author Info

  • József Molnár

    ()
    (Bank of Finland)

  • Márton Nagy

    ()
    (Magyar Nemzeti Bank)

  • Csilla Horváth

    ()
    (Radboud University Nijmegen, The Netherlands)

Abstract

In this paper we analyze the degree of competition in the Hungarian household credit and deposit markets. We estimate discrete-choice, multinomial logit deposit service and loan demand functions for each bank and calculate the corresponding price elasticities. Two models of the banking industry are considered: a static, differentiated product Nash-Bertrand oligopoly (as non-collusive benchmark) and a cartel. With estimated marginal costs and observed interest rates we calculate the price-cost margins and compare these to the theoretically implied ones. We find that in our sample period the competition in the Hungarian banking sector is low, i.e. price-cost margins are high.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2007/1.

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Length: 44 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mnb:wpaper:2007/1

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Web page: http://www.mnb.hu/
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Keywords: Demand; discrete choice; product differentiation; banking; market power.;

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References

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  10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  11. Suominen, Matti, 1994. " Measuring Competition in Banking: A Two-Product Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 95-110.
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Citations

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Cited by:
  1. Ho, Chun-Yu, 2014. "Switching cost and deposit demand in China," BOFIT Discussion Papers 9/2014, Bank of Finland, Institute for Economies in Transition.
  2. Király, Júlia & Nagy, Márton & Banai, Ádám, 2010. "Az aranykor vége Magyarországon. "Külföldi" és "lokális" bankok - válság előtt és válság után
    [End of the golden age in Hungary. "Foreign" and "local
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 105-131.
  3. Kv, Bhanu Murthy & Deb, Ashis Taru, 2008. "Theoretical Framework Of Competition As Applied To Banking Industry," MPRA Paper 7465, University Library of Munich, Germany.
  4. Molnar, Jozsef & Violi, Roberto & Zhou, Xiaolan, 2010. "Multimarket Contact in Italian Retail Banking: Competition and Welfare," MPRA Paper 48610, University Library of Munich, Germany, revised May 2013.
  5. Chun-Yu Ho, 2010. "Deregulation, competition and consumer welfare in a banking market: evidence from Hong Kong," Journal of Regulatory Economics, Springer, vol. 37(1), pages 70-97, February.
  6. Chun-Yu Ho, 2009. "Market Structure, Welfare, and Banking Reform in China," Working Papers 302009, Hong Kong Institute for Monetary Research.
  7. Molnár, József, 2008. "Market power and merger simulation in retail banking," Research Discussion Papers 4/2008, Bank of Finland.
  8. Szabolcs Szikszai & Tamás Badics & Csilla Raffai & Zsolt Stenger & András Tóthmihály, 2013. "Studies in Financial Systems No 8 Hungary," FESSUD studies fstudy08, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
  9. Várhegyi, Éva, 2010. "A válság hatása a magyarországi bankversenyre
    [The effect of the crisis on bank competition in Hungary]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 825-846.

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