Measuring competition in Croatian banking industry

The overall objective of this paper is to investigate the evolution of market power in the banking industry in the Republic of Croatia since 2002. to 2009. During the last two decade competition has become a frequent topic in the banking literature, great deal of empirical work has attempted to measure the level of competition and concentration. In particular, the paper has a general objective to analyze non-structural and direct measure of bank competition such as the Lerner Index. This measure assumes that each bank set a price to maximize profits, where the price includes two components: marginal cost and margin which is the basis of market power. Index is calculated using the regression analysis. This approach provides more powerful framework to examine industry competition, compared to the commonly used alternatives of using only industry concentration figures such as Herfindahl- Hirschman index, concentration coefficient… For our research we used panel datasets for the Croatian banking industry, provided by Croatian National Bank.