MARKET SHARE INEQUALITY, THE NUMBER OF COMPETITORS, AND THE HHI - AN EXAMINATION OF BANK PRICING

This paper seeks to determine whether the Herfindahl-Hirschman index ( HHI) adequately accounts for the roles of market share inequality and the number of competitors in explaining bank deposit and loan rates. T his is been done by estimating deposit-rate and loan-rate equations in which the HHI is decomposed into components that reflect share inequa lity and number of competitors and, alternatively, by adding measures of share inequality and the number of competitors as additional explan atory variables. Results are inconclusive in the case of deposit rates but suggest that the HHI does not give sufficient weight to the numbe r of competitors in explaining loan rates.