The cost of market power in banking: social welfare loss vs. inefficiency cost

Joaquin Maudos () and Juan Fernandez de Guevara
Authors registered in the RePEc Author Service: Juan Fernández-de-Guevara ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyses the relationship between market power in the loan and deposit markets and efficiency in the EU15 countries over 1993-2002. Results show the existence of a positive relationship between market power and cost X-efficiency, allowing rejection of the so-called quiet life hypothesis (Berger and Hannan, 1998). The social welfare loss attributable to market power in 2002 represented 0.54% of the GDP of the EU15. Results show that the welfare gains associated with a reduction of market power are greater than the loss of bank cost efficiency, showing the importance of economic policy measures aimed at removing the barriers to outside competition.

Keywords: market power; welfare loss; X-inefficiency; banking (search for similar items in EconPapers)
JEL-codes: D40 G21 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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