Cashing in on Customers? Cooperative Pricing Theory with an Application on the Swedish Banking Sector

University essay from Linköpings universitet/Ekonomiska institutionen

Abstract:

The reason for this study of the Swedish banking sector is that we suspect that collusion is at hand in the sector. We ground our suspiciousness on the extensive revenues and high retail banking fees. Swedish banking fees are the highest in EU. Based on this and that the banking sector is oligopolistic with only a few significant competitors we found it interesting to apply theories concerning tacit collusion on the banking sector. Our main conclusions are that cooperative pricing could be successful for banks since prices are a poor means of competition whereas customers focus on service quality instead of price. There is little asymmetry among the established banks and they cooperate through a number of systems. Since they cooperate through these systems the banks experience similar cost pressures and information is available. The Swedish bankers’ association plays an important role in the exchange of information. Thus, the facilitating features are strong and cooperative pricing can be profitable. An effective banking sector is essential for an economy and has a central role in the society as a whole. The presence of collusion can therefore have important implications, not only for the customers but also for the society. Efficiency costs also appear when collusion is at hand and can exceed the society’s welfare losses.

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