How to measure the market power of banks in the lending business accurately: a segment-based adjustment of the Lerner Index

Autor: Toni Richter, Horst Gischer, Holger Müller
Rok vydání: 2015
Předmět:
Zdroj: Applied Economics. 47:4475-4483
ISSN: 1466-4283
0003-6846
DOI: 10.1080/00036846.2015.1030570
Popis: Numerous empirical studies use the price-cost-margin-based Lerner Index (LI) to assess the general market power of banks. A common procedure within those LI applications is to approximate the market price required for the LI measurement as the ratio of a bank’s total revenues to total assets. We discuss the major flaws of this aggregated procedure and propose an adjusted (i.e. business segment-orientated) LI approach, which is then applied to assess the market power of banks in the specific lending business at the country level. Our empirical study is based on an original data set containing all interest-related categories (weighted by the respective loan as well as deposit volumes) in the countries of the European Monetary Union zone (EMU) from 2003 to 2013. Our results reveal that the country-specific market power of banks in the lending business has been substantially underestimated in previous studies based on aggregated outputs. For example, averaged across the five most important economies in the EM...
Databáze: OpenAIRE
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