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Characterising market power and its determinants in the Zambian banking indudstry

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  • Simpasa, Anthony

Abstract

This 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.

Suggested Citation

  • Simpasa, Anthony, 2010. "Characterising market power and its determinants in the Zambian banking indudstry," MPRA Paper 27232, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27232
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    References listed on IDEAS

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    More about this item

    Keywords

    Banking; market power; competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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