Browsing by Author "Madrigal-Badilla, Jorge"
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- Identificación del grado de competencia en el mercado bancario costarricenseThe objective of this work is to identify the degree of competition in the Costa Rican banking industry, based on the model developed by Bresnahan (1982). This model extracts information from aggregated industry data and calculates a coefficient λ, that measures the discrepancy between the demand function and the marginal income faced by the banking system. Monthly time series from June-1997 to June-2004 were used in the estimation. This information was divided in public banks, private banks and the whole banking system. The main results indicate that the Costa Rican banking system does not behave as a perfect competition market and certain monopolistic behavior is present. This market power is basically held by public banks. Market power in the banking system implies that the volume of bank services (credit and deposits) is below the social optimal. Moreover, it reduces the contribution of the financial system to economic growth and social welfare. In addition, the market power held by banks would reduce the effectiveness of the interest rate as an instrument of monetary policy.