Abstract
In this reply, we provide detailed answers to the remarks made by Tsionas on the use of stochastic frontier-based measures of market power in a part of our empirical study, which examines the fragmentation and convergence dynamics of market power, concentration and credit risk in the euro area banking sector during 2005–2017. Our answers clarify all the issues raised by Tsionas and show that the only challenging, in our opinion, point of the criticism has been based on a hypothesis that does not hold in the case of our study.
Highlights
Tsionas (2020, MT) made some remarks regarding the use of stochastic frontier-based measures of market power in a part of our empirical study (Karadima and Louri 2020, KL), which examines the evolution, as well as the fragmentation and convergence dynamics, of market power, concentration and credit risk in the euro area banking sector during 2005–2017
Our reference to a profit maximization behavioral assumption is exclusively related to the calculation of the Lerner indexmaximization per se
The Lerner index is based on the behavioral which is behind the estimation of a cost assumption of static profit maximization, the mark-up should always non-negative
Summary
Tsionas (2020, MT) made some remarks regarding the use of stochastic frontier-based measures of market power in a part of our empirical study (Karadima and Louri 2020, KL), which examines the evolution, as well as the fragmentation and convergence dynamics, of market power, concentration and credit risk in the euro area banking sector during 2005–2017. As some auxiliary calculations had not been included for brevity in our research, we illustrate in Section 6 how we arrived at our Equation (5), starting from our Equation (4). Since our analysis has been based on country-level aggregated data, we consider that the criticism at this point is not relevant
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