nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒08‒20
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The hotelling model with multiple demands By GAUDET, Gérard; SALANT, Stephen W.
  2. Measuring competition in banking: A critical review of methods By Florian LEON
  3. Do Banks Price Discriminate Spatially? Evidence from Small Business Lending in Local Credit Markets By Andrea Bellucci; Alexander Borisov; Alberto Zazzaro

  1. By: GAUDET, Gérard; SALANT, Stephen W.
    Abstract: The purpose of this chapter is to provide an elementary introduction to the non-renewable resource model with multiple demand curves. The theoretical literature following Hotelling (1931) assumed that all energy needs are satisfied by one type of resource (e.g. ‘oil’), extractible at different per-unit costs. This formulation implicitly assumes that all users are the same distance from each resource pool, that all users are subject to the same regulations, and that motorist users can switch as easily from liquid fossil fuels to coal as electric utilities can. These assumptions imply, as Herfindahl (1967) showed, that in competitive equilibrium all users will exhaust a lower cost resource completely before beginning to extract a higher cost resource: simultaneous extraction of different grades of oil or of oil and coal should never occur. In trying to apply the single-demand curve model during the last twenty years, several teams of authors have independently found a need to generalize it to account for users differing in their (1) location, (2) regulatory environment, or (3) resource needs. Each research team found that Herfindahl's strong, unrealistic conclusion disappears in the generalized model; in its place, a weaker Herfindahl result emerges. Since each research team focussed on a different application, however, it has not always been clear that everyone has been describing the same generalized model. Our goal is to integrate the findings of these teams and to exposit the generalized model in a form which is easily accessible.
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:mtl:montde:2014-04&r=ind
  2. By: Florian LEON
    Abstract: Many studies have attempted to investigate the determinants and implications of competition in the banking industry. The literature on the measurement of competition can be divided between the structural and non-structural approaches. The structural approach infers the degree of competition from the structure of the market. The non-structural approach, based on the New Empirical Industrial Organization, assesses the degree of competition directly by observing behavior of firms in the market. This paper reviews the most frequently-used structural and non structural measures of competition in banking. It highlights their strengths and weaknesses, especially for studies based on a limited number of observations.
    Keywords: Boone indicator, Panzar-Rosse model, Conjectural variation model, Lerner index, HHI, Bank, competition
    JEL: O55 L13 L11 G21 D4
    URL: http://d.repec.org/n?u=RePEc:cdi:wpaper:1577&r=ind
  3. By: Andrea Bellucci (University of Naples Federico II); Alexander Borisov (University of Cincinnati); Alberto Zazzaro (Polytechnic University of Marche, Money and Finance Research group (MoFiR, Ancona) and CASMEF (Rome))
    Abstract: In this paper we explore the effects of bank-borrower physical proximity on price and non-price aspects of small business lending in local credit markets. Along the price dimension, our analysis reveals that interest rates increase with bank-borrower distance and decrease with the distance between borrower and other competing banks. Along the quantity dimension, we observe that more distant borrowers are more likely to experience binding credit limits. We also show that the quantity effects of bank-borrower distance are concentrated among less transparent firms. Our findings are consistent with pricing based on marginal costs that reflect information-based factors, and are in contrast to the established paradigm, where banks adopt spatial discriminatory pricing rules when lending to small-sized enterprises.
    Keywords: Distance, Bank lending, Pricing, Interest rate, Credit availability.
    JEL: G21 G32 L11
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:lui:casmef:1303&r=ind

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