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

Author

Listed:
  • 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.

Suggested Citation

  • József Molnár & Márton Nagy & Csilla Horváth, 2007. "A Structural Empirical Analysis of Retail Banking Competition: the Case of Hungary," MNB Working Papers 2007/1, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:wpaper:2007/1
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    File URL: http://www.mnb.hu/letoltes/wp2007-1.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ho, Chun-Yu, 2012. "Market structure, welfare, and banking reform in China," Journal of Comparative Economics, Elsevier, vol. 40(2), pages 291-313.
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    3. Balázs Égert & Ronald MacDonald, 2009. "Monetary Transmission Mechanism In Central And Eastern Europe: Surveying The Surveyable," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 277-327, April.
    4. M. Girotti & R. Meade, 2017. "U.S. Savings Banks' Demutualization and Depositor Welfare," Working papers 639, Banque de France.
    5. Adam Banai & Julia Kiraly & Marton Nagy, 2011. "The demise of the halcyon days in Hungary: “foreign” and “local” banks – before and after the crisis," BIS Papers chapters, in: Bank for International Settlements (ed.), The global crisis and financial intermediation in emerging market economies, volume 54, pages 195-224, Bank for International Settlements.
    6. Gunther Capelle-Blancard & Olena Havrylchyk, 2017. "Incidence of Bank Levy and Bank Market Power," Review of Finance, European Finance Association, vol. 21(3), pages 1023-1046.
    7. Chun‐Yu Ho, 2015. "Switching Cost And Deposit Demand In China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(3), pages 723-749, August.
    8. Temesvary, Judit, 2015. "Dynamic branching and interest rate competition of commercial banks: Evidence from Hungary," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 98-110.
    9. Judit Temesvary, 2016. "The drivers of foreign currency-based banking in Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 24(2), pages 233-257, April.
    10. Kv, Bhanu Murthy & Deb, Ashis Taru, 2008. "Theoretical Framework Of Competition As Applied To Banking Industry," MPRA Paper 7465, University Library of Munich, Germany.
    11. 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.
    12. 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" banks ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 105-131.
    13. 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.
    14. Judit Temesváry, 2014. "Explaining the Differences between Local Currency versus FX-denominated Loans and Deposits in the Central-Eastern European Economies," CERS-IE WORKING PAPERS 1405, Institute of Economics, Centre for Economic and Regional Studies.
    15. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers 2006/5, Magyar Nemzeti Bank (Central Bank of Hungary).
    16. 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.
    17. Molnar, Jozsef & Violi, Roberto & Zhou, Xiaolan, 2013. "Multimarket contact in Italian retail banking: Competition and welfare," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 368-381.
    18. Chun‐Yu Ho, 2015. "Switching Cost And Deposit Demand In China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(3), pages 723-749, August.
    19. repec:zbw:bofitp:2009_019 is not listed on IDEAS
    20. Dancsik, Bálint & Marosi, Anna & Szabó, Beáta, 2022. "Túl drága az olcsó hitel - a családi otthonteremtési kedvezmény támogatott hitelkamatainak vizsgálata [Cheap loans are too expensive: an examination of interest rates on subsidised housing loans]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1493-1506.
    21. Ho, Chun-Yu, 2012. "Market structure, welfare, and banking reform in China," Journal of Comparative Economics, Elsevier, vol. 40(2), pages 291-313.

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    More about this item

    Keywords

    Demand; discrete choice; product differentiation; banking; market power.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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