Characterising market power and its determinants in the Zambian banking indudstry
AbstractThis article evaluates the intensity of competition by estimate a bank-specific and time varying Lerner Index as a measure of market power by Zambian banks in the post-reform period. Using a model of oligopolistic conduct, we show that Zambian banks exercised market power in setting prices. Furthermore, market concentration, efficiency performance, diversity in revenue sources and regulatory intensity accounted for much of the banks’ exercise of market power. However, the results indicate that credit risk and macroeconomic uncertainty had a weakening effect on the banks’ exercise of market power. The policy lesson from the analysis is that regulatory authorities should continue with the policy of opening up the financial sector to more players in order to foster contestability in the banking industry.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 27232.
Date of creation: 06 Dec 2010
Date of revision:
Banking; market power; competition;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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