Competition and collusion in the Mexican banking industry

Available from: 
October 2013
Paper author(s): 
Claudia Ruiz (World Bank)
Topic: 
Financial Economics
Year: 
2013

Lacea2013
This paper investigates theoretically and empirically the competition practices in the Mexican banking industry using a novel transaction-level data set including all corporate loans of every commercial bank in Mexico from 2002 to 2012. To motivate our empirical strategy, we build a quantitative model where banks compete for customers a Cournot. A novelty of the model is that, as suggested by the data, banks segment their customers by geographic location, by size and by their current bank affiliation. In an environment with costs to banks, incumbent customers are more profitable than new ones increasing the incentives banks have to bilaterally collude, by reducing the offers extended to customers affiliated with the colluding bank. The main predictions are that: (i) collusion increases as interbank rates decrease; (ii) banks with larger market share have higher incentives to engage in collusion practices; and (iii) larger customers suffer more from collusion practices. Finally, we find that firms who switch banks obtain lower interest rates and this incumbent premium is reduced with firm size and bank competition.

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Research section: 
Lacea 2013 annual meeting
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