Spatial competition and market power in banking

Timothy Richards, Ram N. Acharya, Albert Kagan

Research output: Contribution to journalArticle

18 Scopus citations

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 1 2008

Keywords

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

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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