What Affects Bank Market Power in the Euro Area? A Structural Model Approach

In this study we explore market power in 13 EU banking sectors for the years 2007 to 2019 by estimating a structural model with demand and supply equations, where mark-up of price over marginal cost is parameterized as measure banks’ conduct that depends on selected factors. Our evidence indicates banks enjoy significant degree power, which shows decreasing trend time some difference across countries. More competition associated higher bank density, lower capitalization, more efficient stable systems, better macroeconomic conditions. Finally, clear convergence pattern emerges behaviour banks.