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Essays on Heterogeneous Technologies and Market Behavior

Performance and market behavior of US commercial banks has always been of the central interest of many researchers as well as policy makers. This interest spurred even more especially after the deregulations of early 1980's and 1990's that allowed interstate banking and branching and introduced new financial instruments to the market. Due to the large number of commercial banks, which nowadays is less than half of that of early 80's, there is an observed large difference in their size as it is measured by their total assets. The characterization of the banks as large, middle, or small is often done in an arbitrary and an ad hoc fashion. The intent of this study is to employ techniques that are able to split the sample using data driven methods and estimate the performance and the market power of groups with different size range. In addition, the number of groups is not predetermined but estimated within the model. Accounting for different sized banks is very crucial, as pooling them in a single class will either overestimate or underestimate the efficiencies and the market power measures of individual bank. This will in turn induce biased conclusions and intervention policies.