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Spatial Competition and Market Power in Banking

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  • Richards, Timothy J.
  • Acharya, Ram N.
  • Kagan, Albert

Abstract

Banks in non-metropolitan areas compete in a spatially-differentiated environment. Particularly with the advent of electronic banking services, however, there is some question as to how much market power is conferred by spatial separation from rivals. This paper estimates a structural model of the supply and demand of banking services in which pricing power is allowed to depend explicitly on the distance between rival banks. A spatial autoregressive econometric model shows that approximately 38.0% of economic surplus earned by firms in non-metropolitan banking in the upper midwest is due to spatial market power.

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File URL: http://purl.umn.edu/6566
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Paper provided by International European Forum on Innovation and System Dynamics in Food Networks in its series 2007 1st Forum, February 15-17, 2007, Innsbruck, Austria with number 6566.

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Date of creation: 2007
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Handle: RePEc:ags:iefi07:6566
Contact details of provider: Web page: http://uf.ilb.uni-bonn.de/innovation2007

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Keywords: banking; market power; non-metropolitan markets; spatial econometrics; Community/Rural/Urban Development; Financial Economics; C21; D43; G21; L13;

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Find related papers by JEL classification:
  • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
  • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
  • 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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Cited by:

  1. Acharya, Ram N. & Kagan, Albert & Richards, Timothy J., 2006. "Profitability and Long-term Survival of Community Banks: Evidence from Texas," 2006 Annual meeting, July 23-26, Long Beach, CA 21453, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Coccorese, Paolo & Pellecchia, Alfonso, 2013. "Multimarket contact, competition and pricing in banking," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 187-214.
  3. Maureen Kilkenny, 2010. "Urban/Regional Economics And Rural Development," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 449-470.
  4. David VanHoose, 2013. "Implications of Shifting Retail Market Shares for Loan Monitoring in a Dominant-Bank Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(3), pages 291-316, 07.
  5. Matthias Firgo & Agnes Kügler, 2014. "Detecting Collusion in Spatially Differentiated Markets," Department of Economics Working Papers wuwp188, Vienna University of Economics and Business, Department of Economics.
  6. Lin, Shannon, 2015. "Are ivory towers truly ivory? Knowledge spillovers and firm innovation," Journal of Economics and Business, Elsevier, vol. 80(C), pages 21-36.

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