Competition and Concentration in the New European Banking Landscape

This paper measures the degree of concentration and competition in the enlarged European Union (EU) banking environment over the period 1998–2002. In the empirical part we opt for a methodology as proposed by Panzar and Rosse based on a non‐structural estimation of market competition. Our results suggest that European banks were operating under conditions of monopolistic competition and that bank interest revenues in the 10 new EU member states was earned under conditions of higher competition than those that existed in the old EU banking countries. The opposite result was observed for total operating revenues. Smaller banks earn interest income in a less competitive environment than larger banks, while the opposite is observed for total revenues.