Regulation and the Market for Checks (Duzenlemeler ve Cek Piyasasi)
AbstractThis paper analyzes the market for checks using the monopoly problem as an approximation. The need for such an analysis arises due to the following policy proposal : the Turkish government considers increasing the lump-sum amount that drawee banks are legally responsible to pay per bad check. We show that banks will tend to restrict the quantity of checks as a response to such a policy action. We report that a percentage increase in banks' obligation per bad check could lead up to a 1.7% decline in the total supply of checks on the margin. We establish that the extent of the monopoly distortion depends on three main factors : (i) the elasticity of demand for checks, (ii) how fast the fraction of bad checks increase with the total supply of checks, and (iii) the degree of preference heterogeneity.
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Bibliographic InfoPaper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1006.
Date of creation: 2010
Date of revision:
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Checks; regulation; monopoly power; preference heterogeneity.;
Other versions of this item:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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