Price and Non-price Competition of State-influenced Banks: Current Trends and Prospects

<p><span style="color: rgb(0, 0, 0); font-family: tahoma, arial, verdana, sans-serif, 'Lucida Sans'; font-size: 10.909090995788574px; line-height: 16.500001907348633px;">The paper discusses the main modern approaches to the study of banking competition in Russia. The Russian banking system consists of a large number of banks. However, due to the institutional peculiarities, Russian banking sector is a priori rather concentrated market, whereby even indicators showing a moderate market concentration, it will be characterized by the features of monopolistic competition. This is mainly due to the fact that the market is dominated by several large state-owned banks (Sberbank of Russia, VTB, Russian Agricultural Bank, Gazprombank and Bank of Moscow), which account for a total of about 45% of all banking assets. To confirm this hypothesis, the author analyzed the structure of the banking competition between two Russian regions by more than 90 banks, accounting for 95% assets of the regional market.</span><br style="color: rgb(0, 0, 0); font-family: tahoma, arial, verdana, sans-serif, 'Lucida Sans'; font-size: 10.909090995788574px; line-height: 16.500001907348633px;" /><span style="color: rgb(0, 0, 0); font-family: tahoma, arial, verdana, sans-serif, 'Lucida Sans'; font-size: 10.909090995788574px; line-height: 16.500001907348633px;">The paper studies empirically competition on regional markets for banking services in Russia. Bank-level statistics collected in&nbsp;</span><span style="color: rgb(0, 0, 0); font-family: tahoma, arial, verdana, sans-serif, 'Lucida Sans'; font-size: 10.909090995788574px; line-height: 16.500001907348633px;">two adjacent Russian regions, namely Nizhny Novgorod and Samara Region, enabled to compare these markets. Estimation based on non-structural model of Panzar&ndash;Rosse and Herfindahl&ndash;Hirschman index and suggests that both regional markets are featured by monopolistic competition. Contrary to ex ante expectations, intensity of competition in Samara Region was not be higher than in the Nizhny Novgorod Region. Econometric analysis shows that at the regional level, competition in the financial services market is lower than the national average. The author also found statistical proof to the theoretical hypothesis that market power dynamics are driven by market structure, i.e. by the degree of market concentration in the hands of top players, in particular state-owned banks.</span></p>