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The Profit-Structure Relationship in Banking--Tests of Market-Power and Efficient-Structure Hypotheses

1995; Wiley; Volume: 27; Issue: 2 Linguagem: Inglês

10.2307/2077876

1538-4616

Allen N. Berger,

Economic theories and models

This paper enters the debate between market-power and efficient-structure explanations of the profit-structure relationship in banking by including direct measures of X-efficiency and scale efficiency in the analysis. Structural models of two market-power hypotheses and two efficient-structure hypotheses are expressed in testable reduced form profit equations. This methodology is applied to thirty cross-sections of 1980s banking data. These data are somewhat consistent with one of the market-power and one of the efficient-structure hypotheses. However, none of the hypotheses are overwhelmingly important in explaining bank profits, suggesting that alternative theories be pursued. Copyright 1995 by Ohio State University Press.