Market Power and Structure and Commercial Bank Installment Lending

Abstract

The relationship between commercial bank performance and market structure is of continuing importance to public policy-makers and bank regulatory authorities. Indeed, the underlying rationale for the actions taken by the regulatory authorities on proposed structural changes is the link in neoclassical theory between market structure and competition, performance and public welfare. Unfortunately, results of numerous theoretical and empirical studies that focus on relationships between bank performance and market structure are inconclusive and conflicting.l These incongruities exist for several reasons. Principal among them are the problems of data aggregation, specification of bank product lines and geographic markets, the omission of production costs from measures of performance, monopoly power and/or public welfare,2 and limiting assumptions in the speciElcation of behavioral models and interpretation of their results.3 In this paper, a study of the impact of market structure on individual commercial bank market power is reported. The study, which is an extension of previous studies, attempts to avoid the above-mentioned problems by using alternative