Competition and contestability in Central and Eastern European banking markets

Abstract

Purpose – This study sets out to examine the evolution of competitive conditions in the banking industries of 14 Central and Eastern European (CEE) transition economies for the period 1993‐2000.Design/methodology/approach – The basis for the evaluation of competitive conditions is the extant oligopoly theory in the new industrial organization literature, specifically, the competition model developed by Panzar and Rosse.Findings – The results of the competition analysis suggest that the banking markets of CEE countries cannot be characterized by the bipolar cases of either perfect competition or monopoly over 1993‐2000 except for FYR of Macedonia and Slovakia. That is, banks earned their revenues as if operating under conditions of monopolistic competition in that period. An analysis of changes in competitive structure shows a higher degree of competition in the later years of the sample period. Large banks in transition countries are found to be operating in a relatively more competitive environment compa...