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Market Power in Outputs and Inputs: An Empirical Application to Banking

  • Robert M. Adams
  • Lars-Hendrik Röller
  • Robin C. Sickles

This paper provides evidence on the empirical separability of input and output market imperfections. We specify a model of banking competition and simultaneously estimate bank conduct in output (loan) and input (deposit) markets. Our results suggest that firms display some degree of noncompetitive behavior in both the loan and the deposit markets. Moreover, we find that the input side and the output side are empirically separable, that is the measurement of market power on one side of the market is not affected by assuming that the other side of the market is perfectly competitive. Our results suggest that empirical studies of market power that concentrate on either the input side or the output side, are not subject to significant misspecification error. ZUSAMMENFASSUNG - (Marktmacht auf Input- und Outputmärkten: Eine Empirische Anwendung auf den Bankensektor) Der Aufsatz untersucht den Zusammenhang von Unvollkommenheiten auf Input- und auf Outputmärkten. Im Rahmen eines Wettbewerbsmodells für den Bankensektor wird die Wechselwirkung zwischen Outputmarkt, d.h. bei der Kreditvergabe, und Inputmarkt (Geldanlage) empirisch untersucht. Die Ergebnisse zeigen, dass Banken auf beiden Seiten des Marktes eine gewisse Marktmacht ausüben können. Allerdings ist die Wechselwirkung begrenzt, sodass eine separate Betrachtungsweise von Input- und Outputmärkten möglich ist. Dies bedeutet wiederum, dass empirische Untersuchungen, die jeweils nur eine Seite des Marktes analysieren, keinen signifikanten Verzerrungen unterliegen.

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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 02-33.

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Length: 34 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:wzb:wzebiv:fsiv02-33
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