Interplay Between Market Concentrаtion and Competitive Dynamics in The Banking Sector

Abstract

The paper tests the fundamental premise of the SCP paradigm – whether there is a linear interplay between the variation of the degree of concentration and the degree of competition within the banking sectors in Serbia, Croatia, Romania and the Czech Republic, and how intense this interplay is, if it does exist. The analysis uses panel data for selected concentration indicators (the Herfindahl-Hirschman Index and the concentration ratio for the five largest banks) and concentration indicators analyzed on the basis of profitability indicators (the interest rate spread) for the 2009-2014 period. An isolated analysis of the degree of concentration indicators of the selected banking sectors indicates that Serbia displayed the lowest degree of concentration, while the highest one was recorded in Croatia. The results of testing the degree of quantitative agreement between the analyzed indicators of concentration and profitability show that the SCP paradigm was successfully proven in cases where it was not expected, considering the values of concentration and profitability indicators, which may primarily be explained by the specifics of the banking sectors in the analyzed European countries