On the Measurement of Market Power in the Banking Industry

Posted: 16 Jun 2008 Last revised: 14 Jun 2010

See all articles by Manthos D. Delis

Manthos D. Delis

Montpellier Business School

Christos Staikouras

Athens University of Economics and Business - Department of Accounting and Finance

Panagiotis T. Varlagas

affiliation not provided to SSRN

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Abstract

This paper compares the estimates of the two most widely used non-structural models for market power measurement in banking, namely the conduct parameter method and the revenue test, as applied to three panels of Greek, Latvian and Spanish banks over the period 1993-2004. We also propose a dynamic reformulation of these models within a panel data context, in order to address possible statistical problems associated with the dynamic nature of bank-level data. The results suggest that both static methods provide lower estimates of market power relative to their dynamic counterparts. Therefore, the inclusion of some dynamics in the models, even though it increased estimation complexity, helped to reveal some collusive behavior of banks.

Keywords: market power estimation, conduct parameter method, revenue test, banking industry

JEL Classification: G21, L10, P20

Suggested Citation

Delis, Manthos D. and Staikouras, Christos and Varlagas, Panagiotis T., On the Measurement of Market Power in the Banking Industry. Journal of Business Finance & Accounting, Vol. 35, pp. 1023-1047. Available at SSRN: https://ssrn.com/abstract=1146389

Manthos D. Delis (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Christos Staikouras

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
Athens, 104 34
Greece
+30 210 8203 459 (Phone)

Panagiotis T. Varlagas

affiliation not provided to SSRN

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