Estimation of the competitive conditions in the Czech banking sector

Stavarek, Daniel and Repkova, Iveta (2011): Estimation of the competitive conditions in the Czech banking sector. Published in: Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis , Vol. 59, No. 2 (March 2011): pp. 299-305.

Abstract

The paper uses New Empirical Industrial Organization approach, especially Panzar Rosse model to estimates the level of competition of the banking industry in the Czech Republic during the period 2001–2009. We apply Panzar-Rosse model to estimate H statistic for a panel of 15 banks, which represent almost 90 % of the market. This paper also measures and compares the degree of banking competition in two sub-periods, 2001–2005 and 2005–2009, in order to investigate development of the competitive structure of the Czech banking industry. We found that the market was in equilibrium during most of the estimation period, which is a necessary condition for sound evaluation of the competition level. While the market can be described as perfectly competitive in 2001–2005, the intensity of competition decreased after joining the EU in 2004 and the market can be characterized as one of monopolistic competition in 2005–2009. The monopolistic competition in the Czech banking market was also revealed if the full sample 2001–2009 is considered.

• Item Type: MPRA Paper
• Language: English
• Keywords: Panzar-Rosse model; competition; banking sector; Czech Republic
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

References

BIKKER, J. A., HAAF, K., 2000: Measures of competition and concentration in the banking industry: a review of the literature. De Nederlandsche Bank Research Series Supervision No. 27.

BIKKER, J. A., HAAF, K.: 2002: Competition, concentration and their relationship: an empirical analysis of the banking industry. Journal of Banking and Finance, Vol. 26, 2191–2214. ISSN 0378-4266.

BIKKER, J. A., SPIERDIJK, L., FINNIE, P., 2007: The Impact of Market Structure, Contestability and Institutional Environment on Banking Competition. DNB Working Paper No. 156/2007.

BIKKER, J. A., SPIERDIJK, L., 2008: How Banking Competition Changed over Time. DNB Working Paper No. 167/2008.

BIKKER, J. A., SHAFFER, S., SPIERDIJK, L., 2009: Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium. Utrecht School of Economics Discussion Paper Series 09–27, 1-39.

BRESNAHAN, T. F., 1982: The Oligopoly Solution Concept is Identified. Economics Letters, Vol. 10, 87–92. ISSN 0165-1765.

CASU, B., GIRARDONE, C., 2006: Bank Competition, Concentration and Efficiency in the Single European Market. Manchester School, Vol. 74, 441–468.

CHAN, D., SCHUMACHER, D., TRIPE, D., 2007: Bank Competition in New Zealand and Australia. In: Centre for Financial Studies Banking and Finance Conference. Melbourne, September 2007.

CHUN, S. E., KIM, B. H., 2004: The Effect of Financial Restructuring on the Degree of Competition in the Korean Banking Industry. Kumamoto Gakuen University Working Paper No. 16.4.

CLAESSENS, S., LAEVEN, L., 2004: What Drives Bank Competition? Some International Evidence. Journal of Money, Credit, and Banking, Vol. 36, 563–584. ISSN 0022-2879.

DELTUVAITĖ, V., VAŠKELAITIS, V., PRANCKEVIČIŪTĖ, A., 2007: The Impact of Concentration on Competition and Efficiency in the LithuanianBanking Sector. Engineering Economics, Vol. 54, No. 4, 7–19. ISSN 1392-2785.

DE ROZAS, G. L., 2007: Testing for Competition in the Spanish Banking Industry: The Panzar-Rosse Approach Revisited. Banco de Espaňa Working paper No. 0726.

DRAKOS, K., KONSTANTINOU, P., 2005: Competition and contestability in transition banking: an empirical analysis. South-Eastern Europe Journal of Economics, Vol. 2, 183–209. ISSN 1109-8597.

FU, M., 2009: Competition in Chinese Commercial Banking. Banking and Finance Review, Vol. 1, No. 1, 1–16. ISSN 1947-6140.

GELOS, R. G., ROLDÓS, J., 2004: Consolidation and market structure in emerging market banking systems. Emerging Markets Review, Vol. 5, No. 1, 39–59. ISSN 1566 0141.

HEMPELL, H. S., 2002: Testing for Competition Among German Banks. Deutsche Bundesbank Discussion paper 04/02.

IWATA, G., 1974: Measurement of Conjectural Variations in Oligopoly. Econometrica, Vol. 42, 947–966. ISSN 0012-9682.

LAU, L. J., 1982: On Identifying the Degree of Competitiveness from Industry Price and Output Data, Economic Letters, Vol. 10, 93–99. ISSN 0165-1765.

LEE, M. H., NAGANO, M., 2008: Market Competition Before and After Bank Merger Wave: A Comparative Study on Korea and Japan. Pacific Economic Review, Vol. 13, 604–619. ISSN 1468-0106.

LERNER, A. P., 1974: The Concept of Monopoly and the Measurement of Monopoly Power. Review of Economic Studies, Vol. 1, 157–175. ISSN 0034-6527.

MATTHEWS, K., MURINDE, V., ZHAO, T., 2007: Competitive conditions among the major British banks. Journal of Banking and Finance, Vol. 31, 2025¬–2042. ISSN 0378-4266.

PANZAR, J. C., ROSSE, J. N., 1987: Testing for ‘Monopoly’ Equilibrium. Journal of Industrial Economics, Vol. 35, 443–456. ISSN 0022-1821.

PAWLOWSKA, M., 2005: Competition, Concentration, Efficiency, and their Relationship in the Polish Banking Sector. National Bank of Poland Working Papers No. 32.

PERERERA, S. SKULLY, M. WICKRAMANAYAKE, V., 2006: Competition and structure of South Asian banking: a revenue behaviour approach. Applied Financial Economics, Vol. 16, 789–801. ISSN 1466-4305.

PRUTEANU-PODPIERA, A., WEILL, L., SCHOBERT, F., 2008: Banking Competition and Efficiency: A Micro-Data Analysis on the Czech Banking Industry. Comparative Economic Studies, Vol. 50, No. 2, 253–273. ISSN 0888-7233.

REZITIS, A. N., 2010: Evaluating the state of competition of the Greek banking industry. Journal of International Financial Markets, Institutions and Money, Vol. 20, No. 1, 68–90. ISSN 1042-4431.

STAIKOURAS, CH., KOUTSOMANOLI-FILLIPAKI, N., 2006: Competition and concentration in the New European banking Landscape. European Financial Management, Vol. 12, No. 3, 443–482. ISSN 1354-7798.

YILDIRIM, H. S., PHILIPPATOS, G. C., 2003: Competition and contestability in Central and Eastern European banking markets. In III. Encuentro Annual de Finanzas, 9–10 January 2003, Santiago, Chile.