The purpose of this research is to examine the relationship between market structure and performance in thebanking sector using data from Pakistani commercial banks. Investigating the effect of changes in the marketstructure on profitability is based on the structure-conduct-performance (SCP) and efficient-structure (E-S)hypotheses. We have taken a sample of 20 scheduled commercial banks incorporated in Pakistan to examine theabove hypotheses, using the annual and pooled data for a period of 9 years from year 1996-2004. Threemeasures of bank’s performance are utilized: return on assets (ROA), return on capital (ROC) and return onequity (ROE). We have used concentration ratio (CR) to measure structure-conduct-performance (SCP)hypothesis and market share to measure efficient-structure (E-S) hypothesis. We have also used control variablesto capture market specific characteristics such as bank size, market size, risk to owners, liquidity measure,market risk, and market growth. Using regression analysis, we have found a positive relationship ofconcentration ratio (CR) with profitability. In light of these results, we conclude that there is a positiverelationship between profitability and concentration.The results of market share (MS) which is used for efficient structure (E-S) hypothesis explain a negativerelationship with profitability. The results of our analysis do not support the efficient structure (E-S) hypothesis.The empirical findings suggest that market concentration determines the profitability in Pakistani commercialbanks. Hence, we also conclude that there is a negative relationship between competition and profitability in thePakistani commercial banks. The leading banks are still enjoying the state of monopoly. But, the market trendshows that this state will not continue for a longer period as private commercial banks have started to competewith the existing top commercial banks.