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Bank-Level Estimates of Market Power

Author

Listed:
  • Sophocles N. Brissimis

    (Bank of Greece)

  • Manthos D. Delis

    (University of Ioannina)

Abstract
The aim of this study is to provide an empirical methodology for the estimation of market power of individual banks. The new method employs the well-known model of Panzar and Rosse (1987) and proposes its estimation using the local regression technique. Thus, a number of restrictive assumptions regarding the properties of the production function of banks are relaxed, while the method proves successful in providing reasonable estimates of bank-level market power when applied to a large panel of banks of transition countries. The empirical results suggest that many banks in the sample deviate significantly from competitive practices and that market power varies substantially across banks in each country. Country averages of the bank-level results exhibit a very close relationship with standard, industry-level Panzar-Rosse estimates.

Suggested Citation

  • Sophocles N. Brissimis & Manthos D. Delis, 2009. "Bank-Level Estimates of Market Power," Working Papers 93, Bank of Greece.
    • Handle: RePEc:bog:wpaper:93
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    References listed on IDEAS

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    3. Apergis, Nicholas, 2015. "Competition in the banking sector: New evidence from a panel of emerging market economies and the financial crisis," Emerging Markets Review, Elsevier, vol. 25(C), pages 154-162.
    4. Mamonov, Mikhail, 2015. "Microeconomic modification of an industry-wide Boone indicator: Market power of Russian banks revisited," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 18-44.
    5. Nguyen, My & Skully, Michael & Perera, Shrimal, 2012. "Bank market power and revenue diversification: Evidence from selected ASEAN countries," Journal of Asian Economics, Elsevier, vol. 23(6), pages 688-700.
    6. Tsionas, Efthymios G. & Malikov, Emir & Kumbhakar, Subal C., 2018. "An internally consistent approach to the estimation of market power and cost efficiency with an application to U.S. banking," European Journal of Operational Research, Elsevier, vol. 270(2), pages 747-760.
    7. Chaffai, Mohamed & Coccorese, Paolo, 2023. "Banking market power and its determinants: New insights from MENA countries," Emerging Markets Review, Elsevier, vol. 55(C).
    8. Tabak, Benjamin M. & Gomes, Guilherme M.R. & da Silva Medeiros, Maurício, 2015. "The impact of market power at bank level in risk-taking: The Brazilian case," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 154-165.
    9. Tsai, Jeng-Yan & Hung, Wei-Ming, 2013. "Bank capital regulation in a cap option framework," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 66-74.
    10. Dimitrios Sideris, 2011. "Optimum currency areas, structural changes and the endogeneity of the OCA criteria: evidence from six new EU member states," Applied Financial Economics, Taylor & Francis Journals, vol. 21(4), pages 195-206.
    11. Cipollini, Andrea & Fiordelisi, Franco, 2012. "Economic value, competition and financial distress in the European banking system," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3101-3109.
    12. Nguyen, My & Perera, Shrimal & Skully, Michael, 2016. "Bank market power, ownership, regional presence and revenue diversification: Evidence from Africa," Emerging Markets Review, Elsevier, vol. 27(C), pages 36-62.
    13. Chen, Jihui & Zhu, Lili, 2019. "Foreign penetration, competition, and financial freedom: Evidence from the banking industries in emerging markets," Journal of Economics and Business, Elsevier, vol. 102(C), pages 26-38.
    14. Căpraru, Bogdan & Ihnatov, Iulian & Pintilie, Nicoleta-Livia, 2020. "Competition and diversification in the European Banking Sector," Research in International Business and Finance, Elsevier, vol. 51(C).
    15. Cummins, J. David & Rubio-Misas, María & Vencappa, Dev, 2017. "Competition, efficiency and soundness in European life insurance markets," Journal of Financial Stability, Elsevier, vol. 28(C), pages 66-78.
    16. Yildirim, Canan & Kasman, Adnan & Hamid, Fazelina Sahul, 2021. "Impact of foreign ownership on market power: Do regional banks behave differently in ASEAN countries?," Economic Modelling, Elsevier, vol. 105(C).
    17. Fukuyama, Hirofumi & Matousek, Roman & Tzeremes, Nickolaos G., 2023. "Estimating the degree of firms’ input market power via data envelopment analysis: Evidence from the global biotechnology and pharmaceutical industry," European Journal of Operational Research, Elsevier, vol. 305(2), pages 946-960.

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    More about this item

    Keywords

    Bank output; Market power; bank-level; local regression;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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