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Joint market power in banking: Evidence from developing countries

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  • Marrouch, Walid
  • Turk-Ariss, Rima

Abstract

We propose an oligopsony-oligopoly model to study bank behavior under uncertainty in developing countries and derive a pricing structure that acknowledges joint market power in both the deposit and loan markets. The model identifies two main components to pricing: rent extraction and input costs. We measure the ability of the banking industry to extract rents from the exercise of joint market power using a sample of 103 developing countries. We find that market power rents are economically significant. Also, the role played by the rent extraction share in loan pricing dominates the share of input costs on average.

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  • Marrouch, Walid & Turk-Ariss, Rima, 2014. "Joint market power in banking: Evidence from developing countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 253-267.
    • Handle: RePEc:eee:intfin:v:31:y:2014:i:c:p:253-267
    DOI: 10.1016/j.intfin.2014.03.013
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    More about this item

    Keywords

    Market power; Bank pricing; Uncertainty; Developing countries;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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