Competition and Contestability in Central and Eastern European Banking Markets*

This study analyzes the evolution of competitive conditions in the Banking industries of fourteen Central and Eastern European (CEE) transition economies using firm-level data. 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. Furthermore, the cross-sectional analysis of competitive structure reveals initially a decreasing trend between 1993 and 1996 and a subsequent increasing trend in competitive conditions after 1996. Large banks in transition countries operate in a relatively more competitive environment compared to small banks, or in other words, competition is lower in local markets compared to national and international markets. JEL Classifications: P30, G21, D40