Assessment of the Deadweight Loss Arising from the Imperfect Competition in the Banking Market


  • Kristaps Freimanis Riga Technical University
  • Maija Šenfelde Riga Technical University
  • Vytautas Juščius Klaipėda University



Banking market, deadweight loss, imperfect competition, market regulation, model construction, regulatory economics, bankų verslas, praradimai, netobula konkurencija, modelis, konstrukcija, valdymo ekonomika


Financial market failures lead to deadweight (welfare) loss for society. Assessment of the deadweight loss started with the so-called Harberger Triangles, where Harberger offered a clear and persuasive derivation of the triangle method of analysing the deadweight loss and applied the method to estimate deadweight losses due to income taxes in the United States. Hertog further put the deadweight loss into the model with government intervention to assess the optimal level of welfare loss control. This concept is central to regulatory economics. Harberger’s approach is based on the deviation of market equilibrium measured in terms of price and quantity. When analysing imperfect competition as one of the market failures, authors have identified in the literature variables for “price” and “quantity”. The research presents the approach how calculating the deadweight loss arising from the imperfect competition using the following variables: “price” – interest rates (loans), “quantity” – exposure of loans on banks’ balance sheets. The outcome of the research is integral for the assessment of the deadweight loss arising from imperfect competition. Deadweight loss calculations for selected countries show results corresponding to the expectation to be lower than 12% - the maximum value is 4,6% for Latvia, which experienced the most significant increase in the banking market concentration from the sample. Research methods used: literature analysis, regression analysis, and mathematical analysis tools (integrals).

Author Biographies

Kristaps Freimanis, Riga Technical University

Kristaps Freimanis

Riga Technical University

Kalnciema street 6, Riga, LV-1048, Latvia

Maija Šenfelde, Riga Technical University

Maija Šenfelde, Professor, Department of the Territorial Development Management and Urban Economics, Faculty of Engineering Economics and Management, Riga Technical University.


Vytautas Juščius, Klaipėda University

Vytautas Juščius, Professor, Department of Economics, Faculty of Social Sciences, Klaipėda University.