ABSTRACT
This chapter summarizes the various approaches to measuring competition and profitability, and how they are related to the framework presented above. In the context of the models discussed here, there may be circumstances where banks can increase their prices and be rewarded by higher profits. They can do so because the drop in demand that would normally result from such an increase is not entirely offset by the extra marginal revenue gained by the price increase. These circumstances are broadly defined as market power. In light of Equation 4.8 above, market power is derived from MSi, η, or λi, or a combination of these variables.
