Maudos, Joaquin and Fernandez de Guevara, Juan (2006): The cost of market power in banking: social welfare loss vs. inefficiency cost. Published in: Documentos de Trabajo, Fundación de las Cajas de Ahorros (2006)
Download (158kB) | Preview
This paper analyses the relationship between market power in the loan and deposit markets and efficiency in the EU15 countries over 1993-2002. Results show the existence of a positive relationship between market power and cost X-efficiency, allowing rejection of the so-called quiet life hypothesis (Berger and Hannan, 1998). The social welfare loss attributable to market power in 2002 represented 0.54% of the GDP of the EU15. Results show that the welfare gains associated with a reduction of market power are greater than the loss of bank cost efficiency, showing the importance of economic policy measures aimed at removing the barriers to outside competition.
|Item Type:||MPRA Paper|
|Original Title:||The cost of market power in banking: social welfare loss vs. inefficiency cost|
|Keywords:||market power, welfare loss, X-inefficiency, banking|
|Subjects:||D - Microeconomics > D4 - Market Structure and Pricing > D40 - General
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Joaquin Maudos|
|Date Deposited:||16. May 2009 09:19|
|Last Modified:||12. Feb 2013 00:13|
Aigner, A., Novell, C.A.K. and Schmidt, S. (1977). “Formulation and estimation of stochastic production function models”, Journal of Econometrics 86, 21-37.
Altunbas, Y., Gardener, E. P. M., Molyneux, P. and Moore, B. (2001). “Efficiency in European banking”, European Economic Review 45(10), 1931-1955
Bain J. (1956). Barriers to new competition, Cambridge. Mass. Harvard University press.
Berger, A. (1995). “The profit-structure relationship in banking –test of market power and efficienct-structure hypotheses”, Journal of Money, Credit and Banking 27(2), 404-431.
Berger, A., and Humphrey, D. (1997). "Efficiency of Financial Institutions: International Survey and Directions for Future Research", European Journal of Operational Research 98, 175-212.
Berger, A.N. and Hannan, T.H. (1998). “The efficiency cost of market power in the banking industry: a test of the ‘quiet life’ and related hypotheses”, Review of Economics and Statistics 8(3), 454-465.
Berger, A., Demirgüç-Kunt, A., Levine, R. and Haubrich, J. (2003). “Bank concentration and competition: an evolution in the making”, Journal of Money, Credit and Banking 35(5), 433-451.
Bikker, J.A. and Haaf, K. (2002). “Competition, concentration and their relationship: an empirical analysis of the banking industry”, Journal of Banking and Finance 26, 2191-2214.
Carbó, S., Fernández de Guevara, J., Humphrey, D. and Maudos, J. (2005). “The intensity of price and non-price competition in banking”, Documento de Trabajo DT 2- 05, Fundación BBVA, Bilbao.
Claessens, S. and Laeven, L. (2004). “What drives bank competition? Some international evidence”, Journal of Money, Credit and Banking 36(3), 563-583.
De Bandt, O. and Davis, E. P. (2000). “Competition, contestability and market structure in European banking sectors on the eve of EMU”, Journal of Banking and Finance 24, 1045-1066.
Demsetz, H. (1973). “Industry Structure, Market Rivalry, and Public Policy”, Journal of Law and Economics 16, 1-9.
DeYoung, R. (1998). “X-Inefficiency and Management Quality in Commercial Banks”, Journal of Financial Services Research 13, 5–22.
Dietsch, M. and Lozano-Vivas, A. (2000). “How the Environment Determines the Efficiency of Banks: A Comparison between French and Spanish Banking Industry” Journal of Banking and Finance 24, 985–1004.
ECB (2004): Report on EU banking structure, European Central Bank, Frankfurt, November.
Fernández de Guevara, J. and Maudos, J. (2004). “Measuring welfare loss of market power: an application to European banks”; Applied Economics Letters 11(13), 833-836.
Fernández de Guevara, J., Maudos, J. and Pérez, F. (2005). “Market power in European banking”, Journal of Financial Services Research 27(2), 109-138.
Fernández de Guevara, J., Maudos, J. and Pérez, F. (2006) “Integration and competition in European financial markets”, Journal of International Money and Finance, forthcoming.
Freixas, X. and Rochet, J-Ch. (1997). Microfoundations of Banking, The MIT Press.
Goldberg, L. G. and Rai, A. (1996). "The Structure-Performance Relationship for European Banking", Journal of Banking and Finance 20, 745-771.
Jondrow, J., Novell, C.A.K., Materov, I.S and Schmidt, P. (1982). “On the estimation of technical inefficiency in the stochastics frontier production models”, Journal of Econometrics 19, 233-38.
Kaas, L. (2004). “Financial market integration and loan competition. When entry deregulation is socially beneficial?” European Central Bank, Working Paper series No. 403, November.
Klein, M. (1971). “A theory of the banking firm”, Journal of Money, Credit and Banking 3, 205-218.
Lozano-Vivas, A., Pastor, J. and Pastor, J.M. (2002). “An Efficiency Comparison of European Banking Systems Operating under Different Environmental Conditions”, Journal of Productivity Analysis 18, 59–77. 25
Maudos, J., Pastor, J.M., Pérez, F. and Quesada, J. (2002). “Cost and profit efficiency in European banks”, Journal of International Financial Markets, Institutions and Money 12, 33-58.
Maudos, J. and Fernández de Guevara, J. (2004). “Factors explaining the interest margin in the banking sectors of the European Union”, Journal of Banking and Finance 28(9), 2259-2281.
Meeusen; W. and van den Broeck, J. (1977). “Efficiency estimation from Cobb- Douglas production function witj componed error”, Internacional Economic Review 18, 435-44.
Molyneux, P., Lloyd-Williams and Thornton, J. (1994). “Competitive conditions in European banking”, Journal of Banking and Finance 18, 445-459.
Molyneux P., Y. Altunbas and Gardener, E. (1996). "The Structure-Performance Relationship in US and European Banking" in Efficiency in European Banking, John Wiley & Sons Ltd. pp. 93-136.
Molyneux, P., Goddard, J. and Wilson, J. (2004). “Dynamics of growth and profitability in banking", Journal of Money, Credit and Banking 36(6), 1069-1090.
Monti, M. (1972). “Deposit, credit, and interest rate determination under alternative bank objetives”, in G.P. Szego and K. Shell (eds.), Mathematical methods in investment and finance, Amsterdam, North-Holland.
Oroz, M. and Salas, V. (2003). “Competencia y eficiencia en la intermediación financiera en España: 1977-2001”, Moneda y Crédito 217, 73-99
Petersen, M.A. and Rajan, R.G. (1995). “The effect of credit market competition on lending relationship”, Quartely Journal of Economics 110, 407-443.
Shaffer, S. (2004). “Patterns of competition in banking”, Journal of Economics and Business, 56(4), 287-313.
Shepherd, W. (1982). “Economies of scale and monopoly profits”, in Industrial Organization, Antitrust, and Public Policy, J.V. Craven (ed.), Boston, Kulwer Nihoff.
Shepherd, W. (1986). “Tobin´s q and the structure-performance relationship: reply”, American Economic Review 76, 1205-10.
Sussman, O., and J. Zeira (1995). “Banking and Development," CEPR Discussion Paper 1127. 26
Vander Vennet, R. (2002). "Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe", Journal of Money, Credit and Banking 34(1), 254-282.