Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Friday, May 28, 2010

The simple analytics of oligopoly banking in developing economies

Posted by D. Daniel Sokol

Tarron Khemraj (New College Florida) discusses The simple analytics of oligopoly banking in developing economies.

ABSTRACT: Previous studies have documented the tendency for the commercial banking sector of many developing economies to be highly liquid and be characterised by a persistently high interest rate spread. This paper embeds these stylised facts in an oligopoly model of the banking firm. The paper derives both the loan and deposit rates as a mark up rate over a relatively safe foreign interest rate. Then, using a diagrammatic framework, the paper provides an analysis of: (i) the distribution of financial surplus among savers, business borrowers and banks; (ii) exogenous deposit shocks; (iii) exogenous loan demand shocks; and (iv) the impact of interest rate control on financial intermediation.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/05/the-simple-analytics-of-oligopoly-banking-in-developing-economies-.html

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