Does Market Concentration Preclude Risk Taking in Baking?

Kaniska Dam () and Santiago Sanchez Pages ()
Additional contact information
Kaniska Dam: Department of Economics and Finance, Universidad de Guanajuato
Santiago Sanchez Pages: Department of Economics, University of Edinburgh
Authors registered in the RePEc Author Service: Santiago Sánchez-Pagés

No EC200302, Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance

Abstract: We analyse risk-taking behaviour of banks in the context of a model based on spatial competition. Banks mobilise deposits by offering deposit rates. We show that when the market concentration is low, banks invest in the gambling asset. On the other hand, for sufficiently high levels of market concentration, all banks choose the prudent asset to invest in, and some depositors may even be left out of the market. Our results suggest a discontinuous relation between market concentration and social welfare.

Keywords: Financial intermediation; Risk-taking; Market concentration (search for similar items in EconPapers)
JEL-codes: G21 L11 L13 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2003-06, Revised 2004-02
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http://economia.ugto.org/WorkingPapers/EC200302.pdf Revised version, 2004 (application/pdf)

Related works:
Working Paper: Does Market Concentration Preclude Risk Taking in Banking? (2004)
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