Welfare loss, redistribution effect, and restriction of output due to monopoly in banking

Abstract

Although several studies have estimated the welfare loss due to monopoly for manufacturing, no such estimate has been made for banking. This study seeks to fill that gap by estimating the deadweight welfare loss, the redistribution effect (total monopoly profits), and restriction of output due to monopoly in banking for 1978. The analysis is based on 6,500 banks and over 2,000 markets. Results indicate that the deadweight welfare loss in banking is very small. However, the redistribution effect (total monopoly profits) and restriction of output in banking is quite large.