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BANK-LEVEL ESTIMATES OF MARKET POWER

Sophocles N. Brissimis
Bank of Greece and University of Piraeus

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.

Keywords: Market power, bank-level, local regression

JEL classification: G21, L11, C14

Acknowledgements: The authors would like to thank H. Gibson and E.G. Tsionas for very helpful comments. The views expressed in this paper do not necessarily reflect those of the Bank of Greece.

Correspondence:

Sophocles N. Brissimis
Economic Reseacrh Department,
Bank of Greece, 21 E. Venizelos Ave.,
102 50 Athens, Greece
Tel. +30210-3202388
Email: sbrissimis@bankofgreece.gr

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