Bank Pricing under Oligopsonistic-Oligopoly: Evidence from 103 Developing Countries

30 Pages Posted: 16 Mar 2011 Last revised: 21 Jan 2012

See all articles by Walid Marrouch

Walid Marrouch

Lebanese American University; CIRANO

Rima Turk-Ariss

International Monetary Fund; Economic Research Forum

Date Written: January 14, 2012

Abstract

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

Keywords: Intermediation, Bank Pricing, Market Structure, Uncertainty, Developing Countries

JEL Classification: C33, G21, L13

Suggested Citation

Marrouch, Walid and Turk-Ariss, Rima, Bank Pricing under Oligopsonistic-Oligopoly: Evidence from 103 Developing Countries (January 14, 2012). Available at SSRN: https://ssrn.com/abstract=1785314 or http://dx.doi.org/10.2139/ssrn.1785314

Walid Marrouch

Lebanese American University ( email )

P.O. Box 13 - 5053
Chouran-Beirut
Beirut, 1102 2801
Lebanon

CIRANO ( email )

1130 Rue Sherbrooke #1400
Montreal, Quebec H3A 2M8
Canada

Rima Turk-Ariss (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Economic Research Forum ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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