Efficiency and Market Power in Spanish Banking
35 Pages Posted: 22 Aug 2010 Last revised: 30 Oct 2010
Date Written: October 19, 2010
Some recent studies have been investigating the existence of market power in the European banking system, in general, and the Spanish banking industry, in particular. Although results are mixed, the evidence suggests some commercial banks and savings banks benefit from monopoly rents. Some other studies [Berger and Hannan, Review of Economics and Statistics LXXX (1998) 454-465] have also found strong evidence that banks in more concentrated markets exhibit lower cost efficiency levels. Our study merges these two groups of findings by exploring how cost efficiency measures for Spanish banks are related to market power using more flexible techniques, which are more consistent with those employed to measure efficiency in the first stage of the analysis. Results show that the relationship varies according to the level of market power, the component of efficiency evaluated (cost, technical or allocative) and the type of banking firm (commercial bank or savings bank), suggesting that the "quiet life" might be a reality only for some banks.
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