Antitrust & Competition Policy Blog

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

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Friday, April 6, 2012

Bank pricing under oligopsony-oligopoly: Evidence from 103 developing countries

Posted by D. Daniel Sokol

Walid Marrouch (BOFIT) and Rima Turk-Ariss (BOFIT) Bank pricing under oligopsony-oligopoly: Evidence from 103 developing countries.

ABSTRACT: We propose a generic oligopsony-oligopoly model to study bank behavior under uncertainty in developing countries. We derive a pricing structure that acknowledges market power in both the deposit and loan markets and identify two theoretical components to the loan rate: a rent extraction component resulting from the interaction between the choke price of loans and prevailing banking structures, and a markup on deposit funding costs that captures the transformation efficiency of financial intermediation. We then test our structural specification with longitudinal data for 103 non-OECD countries and find that both the market structure under uncertainty and the deposit rate matter significantly in pricing. However, the role played by the rent-extraction share in pricing, on average, dominates funding costs in developing countries, and so underscores the importance of market structure in banks’ pricing power.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/04/bank-pricing-under-oligopsony-oligopoly-evidence-from-103-developing-countries-.html

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