| This dissertation examines empirically several features of the commercial banking market in Mexico using detailed time deposit data.;The first chapter measures market power exerted by banks in the time deposit market. I develop a model for depositor demand that treats deposit accounts at competing banks as differentiated products. I also model the supply side decisions of banks. In particular, I model the strategic pricing of deposits (interest rate setting) under different oligopolistic behavioral assumptions taking into account that banks are multi-product firms. I obtain interest rate-cost margins implied by each behavioral assumption. I then compare these estimated margins to observed margins using bank balance sheet and income statement data. I find that depositors value bank characteristics like number of branches, employees per branch, and geographic coverage when choosing a product. Also, consistent with common perception, I find that banks have considerable market power in this market. However, throughout time this market power has decreased.;The second chapter analyzes the pricing decisions by banks. While the first chapter analyzes the pricing of deposits of different maturity, here the focus is on deposits with the same maturity but different investment amounts. Thus, the analysis is on the interest rate schedules (curves) across deposit sizes. I measure the effect of competition on the ability of banks to discriminate among consumers segments. Competition is measured using two alternatives, first as number of banks, and second, the number of rival branches a bank faces in the local market. I find that increased competition raises the interest rates paid by banks for all sizes but the increase is proportionally bigger for larger deposits making the schedules more convex. Also, the effects of competition varies depending on whether the market is large or small. In particular, effects are more important in smaller markets.;The third chapter first establishes the presence of significant interest rate dispersion, even after controlling for bank, market, deposit size and time specific effects. Then the chapter examines the association between interest rate dispersion and market structure. I find that, contrary to what monopolistic competition models predict, interest rate dispersion increases when competition increases. Finally the chapter develops possible explanations for this association. |
