Market Structure and Bank Pricing Behavior : Fresh Evidence from Pakistan

Whether concentrated banking industries allow banks to exercise monopoly power through anticipative pricing is a pertinent question from the perspective of anti-trust policies. We explore this question in context of banking industry in Pakistan. We assess the pricing behavior of banks through three alternative measures – banks’ lending rates, banks’ deposit rates and banks’ net interest margins. Panel data analysis techniques – i.e. fixed effect (FE) and generalized method of moments (GMM) – are applied to bank level data over the period 2000-2015. The results show that higher level of bank concentration is related to lower deposit rates, higher loan rates and higher net interest margins. These results are robust across alternative measures of concentration, estimation techniques and time horizons. These findings have important implications for antitrust policies