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Market Power in Outputs and Inputs: An Empirical Application to Banking

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  • Robert M. Adams
  • Lars-Hendrik Röller
  • Robin C. Sickles

Abstract

This paper provides evidence on the empirical separability of input and output market imperfections. We specify a model of banking competition and simultaneously estimate bank conduct in output (loan) and input (deposit) markets. Our results suggest that firms display some degree of noncompetitive behavior in both the loan and the deposit markets. Moreover, we find that the input side and the output side are empirically separable, that is the measurement of market power on one side of the market is not affected by assuming that the other side of the market is perfectly competitive. Our results suggest that empirical studies of market power that concentrate on either the input side or the output side, are not subject to significant misspecification error. ZUSAMMENFASSUNG - (Marktmacht auf Input- und Outputmärkten: Eine Empirische Anwendung auf den Bankensektor) Der Aufsatz untersucht den Zusammenhang von Unvollkommenheiten auf Input- und auf Outputmärkten. Im Rahmen eines Wettbewerbsmodells für den Bankensektor wird die Wechselwirkung zwischen Outputmarkt, d.h. bei der Kreditvergabe, und Inputmarkt (Geldanlage) empirisch untersucht. Die Ergebnisse zeigen, dass Banken auf beiden Seiten des Marktes eine gewisse Marktmacht ausüben können. Allerdings ist die Wechselwirkung begrenzt, sodass eine separate Betrachtungsweise von Input- und Outputmärkten möglich ist. Dies bedeutet wiederum, dass empirische Untersuchungen, die jeweils nur eine Seite des Marktes analysieren, keinen signifikanten Verzerrungen unterliegen.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 02-33.

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Length: 34 pages
Date of creation: Dec 2002
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Handle: RePEc:wzb:wzebiv:fsiv02-33

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Keywords: Measuring Market Power; Banking;

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References

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Citations

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Cited by:
  1. Karina Otero, 2008. "Evolution in the Market Power of Financial Intermediation Services in Argentina: A Structural Empirical Analysis (2005:q1 - 2007:q1)," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(50), pages 7-60, January -.
  2. Francisco Pérez García & Joaquín Maudos Villarroya & Juan Francisco Fernández de Guevara Radoselovics, 2002. "Market Power In European Banking Sectors," Working Papers. Serie EC 2002-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Elizabeth K. Kiser, 2004. "Modeling the whole firm: the effect of multiple inputs and financial intermediation on bank deposit rates," Finance and Economics Discussion Series 2004-07, Board of Governors of the Federal Reserve System (U.S.).
  4. Karina Otero, 2008. "Market Power Evolution of Financial Intermediation Services in Argentina: Effects of Favorable Macroeconomic Perspectives?," BCRA Working Paper Series 200831, Central Bank of Argentina, Economic Research Department.
  5. Stanhouse, Bryan & Ingram, Matthew, 2007. "A computational approach to the optimal structure of bank input prices," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 439-453, February.
  6. Molnár, József, 2008. "Market power and merger simulation in retail banking," Research Discussion Papers 4/2008, Bank of Finland.

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