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

Walid Marrouch () and Rima Turk-Ariss
Authors registered in the RePEc Author Service: Rima Turk Ariss

No 1/2012, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

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 (search for similar items in EconPapers)
JEL-codes: C33 G21 L13 (search for similar items in EconPapers)
Date: 2012
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