Do Cooperative Banks Have Greater Market Power?

This paper investigates if cooperative banks are different than their commercial counterparts in market power. We use data on a large set of banks over the period 2002-2008 from five European countries with an important market share for the cooperative banking industry (Austria, Denmark, France, Germany, and Italy). We measure bank market power with the Lerner index. We show that cooperative banks have a lower market power than commercial banks. This finding is explained by the governance of cooperative banks. As owners of cooperative banks are also clients of these banks, managers of cooperative banks have incentives to refrain from charging clients heavily.
JEL Codes: G21, P13

Keywords: Lerner Index; Competition; Cooperative Banks.