Market concentration and nonlinear pricing in European banking

• The existence of nonlinear pricing in the European market for loans is examined.
• Estimates the relationship between industry concentration and nonlinear pricing in European banking.
• Nonlinear pricing is associated with increasing monopoly power in European banking.

An econometric test is proposed to show the existence of nonlinear pricing in the European market for loans. The test incorporates a measure of industry concentration to examine the impact of market structure on the use of nonlinear pricing tactics by banks. Econometric results using a panel dataset consisting of seven European countries suggest that nonlinear pricing is associated with increasing monopoly power in European banking.