Spatial competition and market power in banking

Timothy Richards, Ram N. Acharya, Albert Kagan

Research output: Contribution to journalArticle

16 Citations (Scopus)

Abstract

Banks in non-metropolitan areas compete in a spatially differentiated environment. Non-metro community banks have been insulated from increasing competition from metro banks due to their reliance on soft information in relationship lending. Proximity to borrowers, therefore, may be an important source of market power for non-metro community banks. This paper estimates a structural model of the supply and demand of banking services in which pricing power is allowed to depend explicitly on the distance between rival banks. A spatial autoregressive econometric model shows that approximately 38.0% of economic surplus earned by firms in non-metropolitan banking in the upper midwest is due to spatial market power.

Original languageEnglish (US)
Pages (from-to)436-454
Number of pages19
JournalJournal of Economics and Business
Volume60
Issue number5
DOIs
StatePublished - Sep 2008

Fingerprint

Banking
Spatial competition
Market power
Community banks
Structural model
Economic surplus
Econometric models
Banking services
Proximity
Soft information
Relationship lending

Keywords

  • Banking
  • Market power
  • Non-metropolitan markets
  • Spatial econometrics

ASJC Scopus subject areas

  • Business, Management and Accounting(all)

Cite this

Spatial competition and market power in banking. / Richards, Timothy; Acharya, Ram N.; Kagan, Albert.

In: Journal of Economics and Business, Vol. 60, No. 5, 09.2008, p. 436-454.

Research output: Contribution to journalArticle

Richards, Timothy ; Acharya, Ram N. ; Kagan, Albert. / Spatial competition and market power in banking. In: Journal of Economics and Business. 2008 ; Vol. 60, No. 5. pp. 436-454.
@article{01016168743d4222888993a7551247d1,
title = "Spatial competition and market power in banking",
abstract = "Banks in non-metropolitan areas compete in a spatially differentiated environment. Non-metro community banks have been insulated from increasing competition from metro banks due to their reliance on soft information in relationship lending. Proximity to borrowers, therefore, may be an important source of market power for non-metro community banks. This paper estimates a structural model of the supply and demand of banking services in which pricing power is allowed to depend explicitly on the distance between rival banks. A spatial autoregressive econometric model shows that approximately 38.0{\%} of economic surplus earned by firms in non-metropolitan banking in the upper midwest is due to spatial market power.",
keywords = "Banking, Market power, Non-metropolitan markets, Spatial econometrics",
author = "Timothy Richards and Acharya, {Ram N.} and Albert Kagan",
year = "2008",
month = "9",
doi = "10.1016/j.jeconbus.2007.06.002",
language = "English (US)",
volume = "60",
pages = "436--454",
journal = "Journal of Economics and Business",
issn = "0148-6195",
publisher = "Elsevier Inc.",
number = "5",

}

TY - JOUR

T1 - Spatial competition and market power in banking

AU - Richards, Timothy

AU - Acharya, Ram N.

AU - Kagan, Albert

PY - 2008/9

Y1 - 2008/9

N2 - Banks in non-metropolitan areas compete in a spatially differentiated environment. Non-metro community banks have been insulated from increasing competition from metro banks due to their reliance on soft information in relationship lending. Proximity to borrowers, therefore, may be an important source of market power for non-metro community banks. This paper estimates a structural model of the supply and demand of banking services in which pricing power is allowed to depend explicitly on the distance between rival banks. A spatial autoregressive econometric model shows that approximately 38.0% of economic surplus earned by firms in non-metropolitan banking in the upper midwest is due to spatial market power.

AB - Banks in non-metropolitan areas compete in a spatially differentiated environment. Non-metro community banks have been insulated from increasing competition from metro banks due to their reliance on soft information in relationship lending. Proximity to borrowers, therefore, may be an important source of market power for non-metro community banks. This paper estimates a structural model of the supply and demand of banking services in which pricing power is allowed to depend explicitly on the distance between rival banks. A spatial autoregressive econometric model shows that approximately 38.0% of economic surplus earned by firms in non-metropolitan banking in the upper midwest is due to spatial market power.

KW - Banking

KW - Market power

KW - Non-metropolitan markets

KW - Spatial econometrics

UR - http://www.scopus.com/inward/record.url?scp=48249094167&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=48249094167&partnerID=8YFLogxK

U2 - 10.1016/j.jeconbus.2007.06.002

DO - 10.1016/j.jeconbus.2007.06.002

M3 - Article

AN - SCOPUS:48249094167

VL - 60

SP - 436

EP - 454

JO - Journal of Economics and Business

JF - Journal of Economics and Business

SN - 0148-6195

IS - 5

ER -