Who Bears the Burden of Banking Transformation in Turkey? An Empirical Analysis of Demand, Competition and Welfare Analysis

This article investigates consumer demand, competition and welfare in the Turkish deposit and credit markets in 2002-2009 period by using banks' market shares in these markets. A discrete choice structural demand model developed by Berry (1994) is employed in the estimations. As market shares reflect consumers' final choices, the methodology starts with constructing the utility function of consumers who purchase deposit (loan) services from a bank. This method allows us to elaborate on demand, competition and welfare in the same analysis. In the model, a market share equation is derived from the utility function and elasticities which allow to comment on competition are calculated. Lastly, the paper concludes with a welfare analysis based on consumers' last choices. Results of the study show that price elasticities of credit customers are much higher than those of depositors. It may yield more effective results to make price competition in credit market, whereas banks may increase their market share in deposit side by differentiating their products for depositors. There is welfare loss for depositors within 2002-2009 period, but credit customers experience an increase in their welfare in the same period.