The degree of competition in Iranian banking industry: Panzar-Rosse approach

Abstract

The Iranian banking sector has undergone huge and substantial reform in the last decade;¬ privatization¬, establishment of private banks and development of modern technologies (IT). Based on a sample of 19 banks, This paper investigates the competitive condition of the Iranian banking industry over the period 2005-2010 using the H-statistic proposed by Panzar and Rosse.. The properties of this non-structural methodology (e.g. using firm level data, robustness in small samples, no need to specify a relevant market, etc.) make it an excellent framework for assessing the degree of competition in the banking industry. To estimate H-statistic Panel date approach has been used. The estimated H statistics for the whole sample period is 0/7101 and the Wald test for the market structure of monopoly or perfect competition is rejected and implying that the banks earned their revenues in the condition of monopolistic competition. Key words: Competition, Panzar-Rosse, Market structure, Iranian banking industry.