The aggregate Lerner index is a popular composite measure of multi-product banks’ market power, based on total assets as the single aggregate output factor. We show that the aggregate Lerner index only qualifies as a consistently aggregated Lerner index if three conditions hold. Under these conditions, the aggregate Lerner index reduces to a weighted-average of the product-specific Lerner indices. We test the three conditions for a sample of U.S. banks covering the years 2011–2017. All three conditions are rejected and we show that they may cause an economically relevant bias to the aggregate Lerner index, depending on the economic context. As a general solution, we propose using the always consistently aggregated weighted-average Lerner index whenever a composite Lerner index is needed.

The Panzar–Rosse H statistic is a commonly used measure of market power in banking. It is widely believed that H extgreater0 is inconsistent with significant market power. This study rigorously disproves that perception. Instead, the possibility of H extgreater0 under conditions of substantial market power turns out robust to the timing of banks’ actions, relative costs, choice of strategic variable, degree of product differentiation, strategy (static or dynamic), and degree of heterogeneity in banks’ conduct (collusive versus fringe), and hence may be common in practice.

The 2000–2013 period was characterized by substantial regulatory, monetary and technological change, especially after the onset of the global financial crisis. This study assesses the total impact of these policy shifts and technological changes on U.S. commercial banks’ short-run and long-run substitution elasticities. An endogenous-break test divides the sample into a pre-crisis period and a (post-) crisis period. During the former period, banks’ inputs tend to be inelastic substitutes. After the onset of the crisis, particularly the long-run substitutability of most input factors decreases to even lower levels due to changes in both cost technology and economic conditions. At the same time, banks’ response to input price changes becomes more sluggish. Hence, especially after the onset of the crisis, banks have little flexibility regarding input factor usage and are thus sensitive to input price changes from a cost perspective.