Estimation of the competitive conditions in the Czech banking sector

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.Panzar-Rosse model; competition; banking sector; Czech Republic