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Do Islamic banks have greater market power?

Laurent Weill ()

No 2/2010, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: The aim of this paper is to investigate whether Islamic banks have greater market power than con-ventional banks. An Islamic bank, for example, might enjoy enhanced market power if a captive clientele adhering to religious principles permits it to charge higher prices. To measure market power, we compute Lerner indices for a sample of banks from 17 countries where Islamic and conventional banks coexist. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks over the period 2000-2007. When including control variables, regression of Lerner indices even suggests that Islamic banks have less market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are no less competitive than conventional banks. Thus, any reduced market power of Islamic banks can be attributed to differences in norms and incentives.

Keywords: Islamic banks; Lerner index; bank competition (search for similar items in EconPapers)
JEL-codes: D43 D82 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-ban, nep-com, nep-cwa, nep-eff and nep-mic
Date: 2010-02-26
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Working Paper: Do Islamic Banks Have Greater Market Power? (2010) Downloads
Working Paper: Do Islamic Banks Have Greater Market Power ? (2009) Downloads
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