Competition In Iran’s Banking Sector: Panzar-Rosse Approach

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). 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 make it an excellent framework for assessing the degree of competition in the banking industry. To calculate H statistics, a reduced form of revenue equation was estimated. The calculated H statistics for the whole sample period was 0.7101.The extent of H statistics and the result of wald test indicate that the structure of Iranian Banking sector is neither monopoly nor competition. Our findings were in favor of monopolistic competition.