Monopoly Power: Impacts of Location on the Cost of Credit for Small Firms in Brazil

Abstract

The objective of this study is to observe the impact of bank monopoly power on credit costs for micro and small firms in different regions of Brazil. The finance literature offers a wide range of results regarding the effects of bank monopoly. However, few studies explore how these impacts vary according to the location of firms. The central hypothesis is that monopoly power allows banks to discriminate prices across regions of Brazil. To test this hypothesis, a panel data structure was used at the municipal level, covering the period from 1995 to 2022. The results indicate that monopoly power amplifies credit constraints for micro and small firms in the North, Northeast, and Central-West regions, while exerting an opposite effect in the South and Southeast regions. Thus, this study suggests that geographic location modifies the effects of bank monopoly power on credit conditions for smaller firms.