Measuring multi-product banks’ market power using the Lerner index
Sherrill Shaffer () and
Journal of Banking & Finance, 2020, vol. 117, issue C
The aggregate Lerner index is a popular composite measure of multi-product banks’ market power, based on total assets as the single aggregate output factor. We show that the aggregate Lerner index only qualifies as a consistently aggregated Lerner index if three conditions hold. Under these conditions, the aggregate Lerner index reduces to a weighted-average of the product-specific Lerner indices. We test the three conditions for a sample of U.S. banks covering the years 2011–2017. All three conditions are rejected and we show that they may cause an economically relevant bias to the aggregate Lerner index, depending on the economic context. As a general solution, we propose using the always consistently aggregated weighted-average Lerner index whenever a composite Lerner index is needed.
Keywords: Lerner index; Multi-product banks; Market power; Cost functions (search for similar items in EconPapers)
JEL-codes: D43 G21 L13 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Measuring multi-product banks' market power using the Lerner index (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:117:y:2020:i:c:s0378426620301254
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().