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The social costs of bank market power: Evidence from Mexico

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  • Solís, Liliana
  • Maudos, Joaquín

Abstract

This paper estimates the social costs of market power (Harberger's triangle) in the Mexican banking system over the period 1993-2005. It also tests the so-called "quiet life" hypothesis which postulates a negative effect of market power on bank management efficiency. The social cost attributable to market power in 2005 is 0.15% of GDP, while that deriving from the cost (profit) inefficiency of banking management is 0.021% (0.075%) of GDP. The results allow us to reject the quiet life hypothesis in the deposits market. However, market power in the setting of the interest rate on loans has a negative effect on cost efficiency. Journal of Comparative Economics 36 (3) (2008) 467-488.

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  • Solís, Liliana & Maudos, Joaquín, 2008. "The social costs of bank market power: Evidence from Mexico," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 467-488, September.
  • Handle: RePEc:eee:jcecon:v:36:y:2008:i:3:p:467-488
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    4. Mamonov, Mikhail & Vernikov, Andrei, 2015. "Bank ownership and cost efficiency in Russia, revisited," BOFIT Discussion Papers 22/2015, Bank of Finland, Institute for Economies in Transition.
    5. Laurent Weill, 2009. "Do Islamic Banks Have Greater Market Power ?," Working Papers of LaRGE Research Center 2009-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
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    8. Simplice Asongu & Enowbi Batuo & Jacinta Nwachukwu & Vanessa Tchamyou, 2016. "Is information diffusion a threat to market power for financial access? Insights from the African banking industry," Working Papers 16/039, African Governance and Development Institute..
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    11. Fungáčová, Zuzana & Solanko, Laura & Weill, Laurent, 2013. "Does bank competition influence the lending channel in the euro area," BOFIT Discussion Papers 17/2013, Bank of Finland, Institute for Economies in Transition.
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    13. Andrieş, Alin Marius & Căpraru, Bogdan, 2014. "The nexus between competition and efficiency: The European banking industries experience," International Business Review, Elsevier, vol. 23(3), pages 566-579.
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    18. Obeng, K., 2010. "The Deadweight Costs of Public Transit Subsidies," 51st Annual Transportation Research Forum, Arlington, Virginia, March 11-13, 2010 207240, Transportation Research Forum.
    19. Williams, Jonathan, 2012. "Efficiency and market power in Latin American banking," Journal of Financial Stability, Elsevier, vol. 8(4), pages 263-276.
    20. Mamonov, Mikhail, 2015. "Microeconomic modification of an industry-wide Boone indicator: Market power of Russian banks revisited," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 18-44.
    21. Obeng, Kofi, 2010. "The Deadweight Costs of Operating and Capital Subsidies," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 49(1).
    22. Simpasa, Anthony, 2010. "Characterising market power and its determinants in the Zambian banking indudstry," MPRA Paper 27232, University Library of Munich, Germany.
    23. Lapteacru, Ion, 2014. "Do more competitive banks have less market power? The evidence from Central and Eastern Europe," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 41-60.
    24. Saadet Kasman & Adnan Kasman, 2016. "Multimarket contact, market power and financial stability in the Turkish banking industry," Empirical Economics, Springer, vol. 50(2), pages 361-382, March.
    25. M. Brei & L. Jacolin & A. Noah, 2018. "Credit risk and bank competition in Sub-Saharan Africa," Working papers 664, Banque de France.

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