nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒12‒16
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Non-Stationary Demand in a Durable Goods Monopoly. By José María Usategui
  2. The Impact of Bank Size on Market Power By Jacob A. Bikker; Laura Spierdijk; Paul Finnie

  1. By: José María Usategui (Universidad del Pais Vasco)
    Abstract: In a context where demand for the services of a durable good changes over time, and this change may be uncertain, the paper shows that social welfare may be higher when the monopolist seller can commit to any future price level she wishes than when she cannot. Moreover, the equilibrium under a monopolist with commitment power may Pareto-dominate the equilibrium under a monopolist without commitment ability. These results affect the desired regulation of a durable goods monopolist in this context.
    Keywords: Durable good, commitment, demand variations, regulation
    JEL: D42 L12 L41
    Date: 2006–12–02
  2. By: Jacob A. Bikker; Laura Spierdijk; Paul Finnie
    Abstract: Over the past few decades, the worldwide banking industry has undergone strong consolidation. As a result, the number of banks has fallen sharply. At the same time, the size of the largest banks has increased substantially, both in absolute figures and relative to the size of smaller banks. This paper analyzes the impact of this development on competition by assessing the relation between bank size and market power. We use an extended version of the Panzar-Rosse (P-R) model that allows bank size to affect market power. Based on a large sample of more than 18,000 banks in 101 countries comprising more than 112,000 bank-year observations, we show that market power varies with bank size. Large banks have substantially more market power than small banks in many of the countries under consideration, including the world's major economies and covering more than 85% of all banks in our sample. Our results contradict the common finding in the empirical P-R literature that competition increases with bank size. We show that misspecification of the P-R model in the existing literature leads to wrong assessment of the relation between market power and bank size.
    Keywords: banking; bank size; competition; consolidation; market power; market structure; Panzar-Rosse model.
    JEL: D4 G21 L11 L13
    Date: 2006–11

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