Price interactions in the Russian credit market: Who is fighting whom and when do banks facilitate collusion?

Abstract

This paper analyzes how banks react on the interest rate policy of their rivals when the industry-wide price competition is strengthening over different phases of business cycle in both retail and corporate segments of credit market in Russia. Our estimations, based on the models proposed in the literature on New Industrial Empirical Organization (NIEO), show that price wars are taking place from time to time in the retail as well as in the corporate segments of Russian credit market; more often - in periods of macroeconomic crisis, and are started by the banks from the top-30 group (in terms of assets, excluding Sberbank), the most warlike group within the Russian banking system. During the non-crisis periods banks are turning to facilitate collusions. The retail segment of credit market appears to be significantly more competitive as compared to the corporate one.