We present new measures of market power for the banking industry in Colombia and estimate their effect on the cost of credit for non-financial firms. Our results suggest that bank competition increased during the 2006-2008 period –even as concentration increased– but decreased thereafter. Using a unique combination of loan, firm and bank-level datasets we are also able to show that banks loosing overall market power measured by the average price-cost margin decrease interest rates to small firms, but increase rates to firms with which they have the oldest credit relationships.
Bank Market Power and Firm Finance: Evidence from Bank, Firm and Loan level Data
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