Does deregulation make markets more competitive? Evidence of mark-ups in Spanish savings banks

Modelling and testing whether competitive pressures driven by deregulatory changes make markets more competitive are examined. Departures from competitive markets are modelled via mark-up prices. Empirically, a panel data is used on Spanish savings banking industry that is undergoing unprecedented changes caused by the deregulation of financial services, the establishment of the economic and monetary union and developments in information technology. Evidence of mark-ups in output markets is found, and such mark-ups are found to decline slowly over time. This finding suggests that the presence of deregulatory pressures improved the competitive strength of the Spanish savings banks.