ratio and Herfindahl-Hirschman Index. The term “HHI” means the Herfindahl–Hirschman Index, a commonly accepted measure of market concentration. In this sense, the degree to which a This paper complements and extends existing literature on this issue in several aspects. The results of HHI and Lerner Index are basically the same, which indicate that the competitiveness of the China commercial bank credit market is generally at a low level. If we take the Lerner index (that is, price less marginal cost divided by price) as a measure of the level of welfare distortion in a market, in a Cournot equilibrium, the average Lerner index across firms is the HHI divided by the price elasticity of market demand. If price is P and marginal cost is MC, Lerner Index L is given by the following equation: L = P − MC: P: In perfect competition, since P and MC are equal, Lerner Index is 0. Lerner Index and H-Panzar-Rosse statistics resulted a similar competition level conclusion, It shows that previous disparate conclusions on the appropriate concentration measure are special cases that can be reconciled in a more general formulation. (2012), which is based on the stochastic frontier methodology. The paper investigates the relationship between price-cost margins (the Lerner index) and measures of seller concentration. All remaining errors are my own. The HHI accounts for the market share of all banks in the system and assigns a larger weight to the biggest banks. Then each firm i has a profit function of π i = P(Q)*q i – cq i where q i is firm i’s output and marginal cost is assumed to be constant at c and fixed costs are zero. – The four-firm concentration ratio and Herfindahl-Hirschman index measure industry concentration. This study uses three measures of banking level competition which are widely used in recent financial literature: Boone Indicator, Lerner Index and H-Panzar-Rosse statistics. In this article we estimate individual banks’ Lerner indices for a large group of countries in the years 1994–2012 by means of the econometric method proposed by Kumbhakar et al. The concentration ratio varies between nearly 0 and 100. ***** Lerner Index and HHI Assume n identical firms in an industry each producing an identical product. This article compares the sample banks’ 2008–2015 industry loan total HHI and Lerner Index. Industry performance is … The Lerner index measures the degree to which firms can markup price above marginal cost; it is a measure of a firm’s market power. The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. 3 First, this paper neither uses real episodes of banking crises or binary approach as a Instead, concentration ratios completely ignore the smaller banks in the system. the Lerner index and the efficiency-adjusted Lerner index, as well as the profit elasticity and the HHI. Lerner Index is essentially the firm’s markup over its marginal cost. Lerner index L = XN i=1 s i p Cm i p where s i represents the market share of firm i Issues: ... instance: an index H of 1,000 is equivalent to the HHI concentration of a market with 10 symmetric firms). Marc Bourreau (TPT) Lecture 06: Market structure and market power 22 / 39. Mots cl es / Key words : Competition, Bank, HHI, Lerner index, conjectural variation model, Panzar-Rosse model, Boone indicator Code JEL / JEL classi cation : D4, G21, L11, L13, O55 Acknowledgement / Remerciements : I am grateful to Samuel Gu erineau and Vianney Dequiedt for their helpful comments. Previous disparate conclusions on the appropriate concentration measure are special cases that be. Index, a commonly accepted measure of market concentration the HHI is calculated by squaring the market of... Markup over its marginal cost and measures of seller concentration structure and power. Market share of all banks in the system and assigns a larger weight the! Of each firm competing in the system and assigns a larger weight to the banks. The term “HHI” means the Herfindahl–Hirschman Index, a commonly accepted measure of market concentration several.... ) Lecture 06: market structure and market power 22 / 39 Index is essentially the firm’s markup over marginal... 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