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

Arbeitspapier

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.

Object Details

• ISBN: 978-952-462-732-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BOFIT Discussion Papers ; No. 1/2012

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Oligopoly and Other Imperfect Markets
• Subject: intermediation ; bank pricing ; market structure ; uncertainty ; developing countries

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Marrouch, Walid ; Turk-Ariss, Rima
• Event: Veröffentlichung
• (who): Bank of Finland, Institute for Economies in Transition (BOFIT)
• (where): Helsinki
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/212725
• Last update: 10.03.2025, 11:43 AM CET