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Asymmetries in banking conduct: A Cournot - Bertrand model

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  • Dalla, Eleni

Abstract

This paper presents a Cournot – Bertrand model with differentiated loans and deposits. In this context, banks compete in different strategic variables, with bank 1 competing in quantities and bank 2 in interest rates. It is shown that loan and deposit differentiation are necessary conditions for a unique Nash equilibrium. The analysis constitutes a simple framework for the introduction of asymmetries in the behavior of oligopolistic banks, providing possible policy and bank ownership extensions.

Suggested Citation

  • Dalla, Eleni, 2023. "Asymmetries in banking conduct: A Cournot - Bertrand model," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004524
    DOI: 10.1016/j.econlet.2023.111426
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    References listed on IDEAS

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    1. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    2. Agoraki, Maria-Eleni K. & Kouretas, Georgios P., 2021. "Loan growth, ownership, and regulation in the European Banking Sector: Old versus new banking landscape," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    3. Degryse, Hans, 1996. "On the Interaction between Vertical and Horizontal Product Differentiation: An Application to Banking," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 169-186, June.
    4. Jung-Hyun Ahn, 2016. "The Impact of the Banking Competition in Funding and Lending Markets on Lending Technology," Revue économique, Presses de Sciences-Po, vol. 67(6), pages 1117-1139.
    5. Kim, Moshe & Kristiansen, Eirik Gaard & Vale, Bent, 2005. "Endogenous product differentiation in credit markets: What do borrowers pay for?," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 681-699, March.
    6. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, December.
    7. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    8. Carol Horton Tremblay & Victor J. Tremblay, 2019. "Oligopoly Games And The Cournot–Bertrand Model: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 33(5), pages 1555-1577, December.
    9. Eva Schliephake & Roland Kirstein, 2013. "Strategic Effects of Regulatory Capital Requirements in Imperfect Banking Competition," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 675-700, June.
    10. Andrew Cohen & Michael Mazzeo, 2010. "Investment Strategies and Market Structure: An Empirical Analysis of Bank Branching Decisions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(1), pages 1-21, August.
    11. Dalla, Eleni & Varelas, Erotokritos, 2019. "Regulation & oligopoly in banking: The role of banking cost structure," Journal of Economics and Business, Elsevier, vol. 104(C), pages 1-1.
    12. Leonard Cheng, 1985. "Comparing Bertrand and Cournot Equilibria: A Geometric Approach," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 146-152, Spring.
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    15. Tremblay, Carol Horton & Tremblay, Victor J., 2011. "The Cournot-Bertrand model and the degree of product differentiation," Economics Letters, Elsevier, vol. 111(3), pages 233-235, June.
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    More about this item

    Keywords

    Cournot-Bertrand model; Loan differentiation; Deposit differentiation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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