Browsing by Subject "L13"

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  • Marrouch, Walid; Turk-Ariss, Rima (2012)
    BOFIT Discussion Papers 1/2012
    Published in Journal of International Financial Markets, Institutions and Money, Volume 31, Issue 1, July 2014, Pages 253-267 as Joint market power in banking: Evidence from developing countries.
    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. Keywords: intermediation, bank pricing, market structure, uncertainty, developing countries JEL codes: C33, G21, L13
  • Kauko, Karlo (1998)
    Suomen Pankin keskustelualoitteita 28/1998
    In this paper a game theoretic duopoly model is developed to analyse the development of an interbank payment system.There are two competing banks in the model, and payment services offered to the public are among their main products.The customer of the larger bank uses mainly intrabank payment services; these services are assumed to be of high quality.This creates a so-called network externality, meaning that many customers prefer to use the large bank for quality reasons.The development of interbank payment systems reduces the significance of this factor and hence benefits the small bank.A big bank has a sufficient incentive to develop the system only if a fee is charged for using payment systems.The role for public investment depends critically on the pricing of payment services.If banks offer payment services free of charge, their incentives to develop the system are strongly biased, and it would be efficient for the central bank to have an active role in developing the system.If instead payment services are directly priced, eventual distortions are much less serious, and the role of the central bank need not be as prominent. JEL Classification Numbers: G18, G21, L13 Keywords: banks, payments systems, network externality, duopoly
  • Juselius, Mikael; Kim, Moshe; Ringbom, Staffan (2009)
    Bank of Finland Research Discussion Papers 12/2009
    Persistent shifts in equilibria are likely to arise in oligopolistic markets and may be detrimental to the measurement of conduct, related markups and intensity of competition. We develop a cointegrated VAR (vector autoregression) based approach to detect long-run changes in conduct when data are difference stationary. Importantly, we separate the components in markups which are exclusively related to long-run changes in conduct from those explained solely by fundamentals. Our approach does not require estimation of markups and conduct directly, thereby avoiding complex problems in existing methodologies related to multiple and changing equilibria. Results from applying the model to US and five major European banking sectors indicate substantially different behavior of conventional raw markups and conduct-induced markups. Keywords: markups, cointegration, VAR, macroeconomic fundamentals, competition, banking JEL classification numbers: C32, C51, G20, L13, L16
  • Kauko, Karlo (2003)
    Suomen Pankin keskustelualoitteita; Bank of Finland. Discussion papers 26/2003
    Published in Journal of Banking & Finance, Volume 31, Issue 10, October 2007, pp. 2962-2977
    Central securities depositories (CSDs) have opened mutual links, but most of them are seldom used.Why are idle links established? By allowing a foreign CSD to offer services through the link the domestic CSD invites competition.The domestic CSD can determine the cost efficiency of the rival by charging suitable fees, and prevent it from becoming more competitive than the domestic CSD.By inviting the competitor the domestic CSD can commit itself not to charge monopoly fees for secondary market services.This enables the domestic CSD to charge high fees in the primary market without violating investors participation constraints. Key words: securities settlement systems, central securities depositories, network industries, access pricing JEL classification numbers: G29, L13
  • Kauko, Karlo (2002)
    Suomen Pankin keskustelualoitteita 27/2002
    Published in International Review of Financial Analysis, Vol. 13, Issue 5, 2004: 585-600
    This paper presents a duopoly model of the securities settlement industry.Because pooling a large amount of payments can help in using liquidity efficiently, issuers prefer systems where a large number of securities are issued.If the central securities depositories establish a mutual link that enables investors to make transactions with foreign securities, cost savings can be achieved. However, these links may have unexpected effects on CSDs' pricing, and the issuers' share of the fee burden can increase substantially.It is not advisable to ban additional fees for using the link, as the CSDs might simply increase the fee for domestic transactions. Key words: oligopoly, securities settlement systems JEL classification numbers: L13, G20
  • Molnár, József (2008)
    Bank of Finland Research Discussion Papers 4/2008
    This paper tests market power in the banking industry. Price-cost margins predicted by different oligopoly models are calculated using discrete-choice demand estimates of own-price and cross-price elasticities. These predicted price-cost margins are then compared with price-cost margins computed using observed interest rates and estimates of marginal costs. This paper This among the first to. apply this methodology on a detailed, bank-level dataset from the retail banking sector. It extends on previous papers and illustrates the advantages of structural modelling by simulating a counterfactual merger experiment with a number of mergers, each of which involves two major banks, and studying the unilateral effect of the mergers on interest rates. This provides more evidence that concentration measures (such as the Herfindahl index) could be very misleading indicators of market power. Keywords: demand, discrete choice, product differentiation, banking, market power, merger simulation JEL classification numbers: G21, L11, L13
  • Molnár, József (2007)
    Bank of Finland Research Discussion Papers 17/2007
    This paper proposes and tests an explanation as to why rational managers seeking to maximize shareholder value can pursue value-decreasing mergers. It can be optimal to overpay for a target firm and decrease shareholder value if the loss is less than in an alternative where the merger is undertaken by a product market rival. This paper presents a model based on synergies, market power and competition for merger targets. Consistent with the model the empirical results obtained here show a strong correlation between the returns of acquiring firms and close rivals around merger events. Keywords: acquisitions, auction, event study, oligopoly, preemption JEL classification numbers: G34, G14, D43, D44, L13
  • Takalo, Tuomas (2020)
    Journal of the Finnish Economic Association 1
    Published in BoF DP 15/2019 http://urn.fi/URN:NBN:fi:bof-201909061438
    I calibrate switching cost for the Finnish retail deposit market by using the approach developed by Oz Shy (2002). It turns out that switching costs faced by deposit customers of the main Finnish banks manifest large variation and are high, ranging from 200 euros to nearly 1,400 euros. Over a 20-year period, switching costs have increased by roughly 50% in real terms, but in relation to average account balance, switching costs have not essentially changed. Changes and differences in the banks’ competitive strategies might explain the variation in switching costs across time and banks.
  • Takalo, Tuomas (2019)
    Bank of Finland Research Discussion Papers 15/2019
    Published in Journal of the Finnish Economic Association 2020 ; 1 https://www.taloustieteellinenyhdistys.fi/journal-of-finnish-economic-association-1-2020/
    I calibrate switching cost for the Finnish retail deposit market by using the approach developed by Oz Shy (2002). It turns out that switching costs faced by deposit customers of the main banks are high, ranging from 200 euros to nearly 1,400 euros. Over the past 20 years, switching costs have increased by roughly 50% in real terms, but in relation to average account balance, switching costs have not essentially changed. I conjecture that differences in the switching costs among the Finnish banks might be explained by differences in their loyalty programs.
  • Mälkönen, Ville; Vesala, Timo (2006)
    Bank of Finland Research Discussion Papers 26/2006
    Published in Oxford Economic Papers, Volume 65, Issue 4, 2013, Pages 789-806
    We study the adverse selection problem in imperfectly competitive credit markets and illustrate the circumstances where a separating equilibrium emerges, even without collateral.The borrowers are heterogeneous in their preferences concerning the banks.Separation obtains in market segments where the 'high risk' borrowers receive credit from their preferred bank.The 'low risk' borrowers choose the ex-ante less-preferred bank that offers loan contracts with lower interest rates.The availability of credit will be maximized under an intermediate level of competition, a prediction that is supported by recent empirical evidence. Keywords: asymmetric information, credit rationing, bank differentiation JEL classification numbers: D43, D82, G21, L13
  • Kauko, Karlo (2005)
    Bank of Finland Research Discussion Papers 11/2005
    Published in International Research Journal of Finance and Economics, Issue 24, February 2009: 153-166
    This paper presents a model depicting cross-border payment systems as a mixed oligopoly.A private net settlement system that maximises profit competes with the central banks' gross settlement system that maximises welfare.It may be optimal for the central bank system to encourage increased use of the private system by charging fees that exceed the marginal cost.The central bank system is not only a competitor but also an essential service provider, because central bank money is needed for net settlement of payments in the private system.In some cases the central bank system can paradoxically induce the private system to charge lower fees by making it expensive to use central bank money for settlement purposes. Key words: payment systems, network economics, mixed oligopolies JEL Classification numbers: L13, L44, F36, G29