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A Structural Empirical Analysis of Retail Banking Competition: the Case of Hungary

  • József Molnár

    ()

    (Bank of Finland)

  • Márton Nagy

    ()

    (Magyar Nemzeti Bank)

  • Csilla Horváth

    ()

    (Radboud University Nijmegen, The Netherlands)

In this paper we analyze the degree of competition in the Hungarian household credit and deposit markets. We estimate discrete-choice, multinomial logit deposit service and loan demand functions for each bank and calculate the corresponding price elasticities. Two models of the banking industry are considered: a static, differentiated product Nash-Bertrand oligopoly (as non-collusive benchmark) and a cartel. With estimated marginal costs and observed interest rates we calculate the price-cost margins and compare these to the theoretically implied ones. We find that in our sample period the competition in the Hungarian banking sector is low, i.e. price-cost margins are high.

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File URL: http://english.mnb.hu/Root/Dokumentumtar/MNB/Kiadvanyok/mnbhu_mnbfuzetek/mnbhu_wp2007_1/wp2007_1.pdf
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Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2007/1.

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Length: 44 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mnb:wpaper:2007/1
Contact details of provider: Web page: http://www.mnb.hu/

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  1. Neven, Damien & Roller, Lars-Hendrik, 1999. "An aggregate structural model of competition in the European banking industry," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 1059-1074, October.
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  4. Suominen, Matti, 1994. " Measuring Competition in Banking: A Two-Product Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 95-110.
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  8. Ivaldi, Marc & Verboven, Frank, 2001. "Quantifying the Effects from Horizontal Mergers in European Competition Policy," CEPR Discussion Papers 2697, C.E.P.R. Discussion Papers.
  9. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-56, June.
  10. De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
  11. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
  12. J.A. Bikker & K. Haaf, 2000. "Competition, concentration and their relationship: an empirical analysis of the banking industry," Research Series Supervision (discontinued) 30, Netherlands Central Bank, Directorate Supervision.
  13. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
  14. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
  15. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
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