Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212725
Authors: 
Marrouch, Walid
Turk-Ariss, Rima
Year of Publication: 
2012
Series/Report no.: 
BOFIT Discussion Papers No. 1/2012
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.
Subjects: 
intermediation
bank pricing
market structure
uncertainty
developing countries
JEL: 
C33
G21
L13
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-732-0
Document Type: 
Working Paper

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