The evolution of competition in banking in a transition economy: an application of the Panzar-Rosse model to Armenia

The structure of the banking industry typically undergoes fundamental changes during the transition to a market economy. This research employs the method suggested by Panzar and Rosse (1987) to evaluate the empirical evidence on the evolution of competitive structure in the Armenian banking industry during its recent transition and on the possible forces market power or efficiency/contestability that underlie that evolution. The results point to monopolistic competition.The reduction of bank numbers and the simultaneous increase in concentration is accompanied by a decline in competition intensity, which supports the market-power hypothesis.