Abstract
Panel data on bank loan and deposit interest rates reveal that dispersion of interest rates within geographic markets increases with the number of banks in the market and decreases with the density of branches and size of the market. It also reveals that dispersion increases with absolute product specific inflation and is higher for bank products of longer maturity and of smaller average volume per transaction. The evidence is consistent with theories of price formation under consumers' search costs. The paper is one of the very few to test theories of price formation under product information differentiation with market structure data.
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