Bank pricing under oligopsony-oligopoly : Evidence from 103 developing countries

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Title: Bank pricing under oligopsony-oligopoly : Evidence from 103 developing countries
Author: Marrouch, Walid ; Turk-Ariss, Rima
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 1/2012
Year of publication: 2012
Publication date: 8.2.2012
Published in: 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.
DOI: 10.1016/j.intfin.2014.03.013
Pages: 25 s.
Keywords: pankkitoiminta; mallit; kehitysmaat; hinnoittelu; talletukset; luotot; epävarmuus; kansainvälinen; korot; Bofit-kokoelma
JEL: C33; G21; L13
Abstract: 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

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