The term âHHIâ means the HerfindahlâHirschman Index, a commonly accepted measure of market concentration. â The four-firm concentration ratio and Herfindahl-Hirschman index measure industry concentration. Mots cl es / Key words : Competition, Bank, HHI, Lerner index, conjectural variation model, Panzar-Rosse model, Boone indicator Code JEL / JEL classi cation : D4, G21, L11, L13, O55 Acknowledgement / Remerciements : I am grateful to Samuel Gu erineau and Vianney Dequiedt for their helpful comments. The concentration ratio varies between nearly 0 and 100. ratio and Herfindahl-Hirschman Index. In this sense, the degree to which a If price is P and marginal cost is MC, Lerner Index L is given by the following equation: L = P â MC: P: In perfect competition, since P and MC are equal, Lerner Index is 0. It shows that previous disparate conclusions on the appropriate concentration measure are special cases that can be reconciled in a more general formulation. Lerner Index and H-Panzar-Rosse statistics resulted a similar competition level conclusion, Then each firm i has a profit function of Ï i = P(Q)*q i â cq i where q i is firm iâs output and marginal cost is assumed to be constant at c and fixed costs are zero. Industry performance is â¦ Marc Bourreau (TPT) Lecture 06: Market structure and market power 22 / 39. The HHI accounts for the market share of all banks in the system and assigns a larger weight to the biggest banks. If we take the Lerner index (that is, price less marginal cost divided by price) as a measure of the level of welfare distortion in a market, in a Cournot equilibrium, the average Lerner index across firms is the HHI divided by the price elasticity of market demand. All remaining errors are my own. 3 ***** Lerner Index and HHI Assume n identical firms in an industry each producing an identical product. Instead, concentration ratios completely ignore the smaller banks in the system. This article compares the sample banksâ 2008â2015 industry loan total HHI and Lerner Index. In this article we estimate individual banksâ Lerner indices for a large group of countries in the years 1994â2012 by means of the econometric method proposed by Kumbhakar et al. Lerner index L = XN i=1 s i p Cm i p where s i represents the market share of ï¬rm i Issues: ... instance: an index H of 1,000 is equivalent to the HHI concentration of a market with 10 symmetric ï¬rms). The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. First, this paper neither uses real episodes of banking crises or binary approach as a the Lerner index and the efficiency-adjusted Lerner index, as well as the profit elasticity and the HHI. The Lerner index measures the degree to which firms can markup price above marginal cost; it is a measure of a firmâs market power. This study uses three measures of banking level competition which are widely used in recent financial literature: Boone Indicator, Lerner Index and H-Panzar-Rosse statistics. Lerner Index is essentially the firmâs markup over its marginal cost. (2012), which is based on the stochastic frontier methodology. This paper complements and extends existing literature on this issue in several aspects. The results of HHI and Lerner Index are basically the same, which indicate that the competitiveness of the China commercial bank credit market is generally at a low level. The paper investigates the relationship between price-cost margins (the Lerner index) and measures of seller concentration. A larger weight to the biggest banks market share of each firm in. Means the HerfindahlâHirschman Index, a commonly accepted measure of market concentration market share of all banks the... Of market concentration a more general formulation by squaring the market share each! 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