Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212095 
Year of Publication: 
2008
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 4/2008
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper tests market power in the banking industry. Price-cost margins predicted by different oligopoly models are calculated using discrete-choice demand estimates of own-price and cross-price elasticities. These predicted price-cost margins are then compared with price-cost margins computed using observed interest rates and estimates of marginal costs. This paper This among the first to. apply this methodology on a detailed, bank-level dataset from the retail banking sector. It extends on previous papers and illustrates the advantages of structural modelling by simulating a counterfactual merger experiment with a number of mergers, each of which involves two major banks, and studying the unilateral effect of the mergers on interest rates. This provides more evidence that concentration measures (such as the Herfindahl index) could be very misleading indicators of market power.
Subjects: 
demand
discrete choice
product differentiation
banking
market power
merger simulation
JEL: 
G21
L11
L13
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-423-7
Document Type: 
Working Paper

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