Efficient Structure Versus Market Power:Theories and Empirical Evidence

sami mensi, Abderrazak Zouari

Abstract


In this paper, we investigate the market structure-performance relationship within the Tunisian banking system during the period 1990-2005. We attempt to distinguish between two theories, namely the Efficient Structure Theory and Market Power Theory. Using the Data Envelopment Analysis Method, we estimate efficiency measures under X-efficiency, Technical Efficiency, Scale Efficiency and Allocative Efficiency. By incorporating into our analyses these forms of efficiency, this study allowed us to test the validity of new hypotheses. The empirical investigation is conducted on profit and price regressions for a sample of 10 commercial banks. The results reject the SCP and Quite life hypotheses under the market power theory but retain the RMP hypotheses. Also, all the hypotheses under Efficient Structure theory are rejected. This result suggests that Tunisian banks do not exert a monopole power entailing the exploitation of customers, yet they are able to extend their market share and generate profits thanks to a diversification of products.

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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