Market Power and Cost Efficiency in Iran's Banking Sector (NEIO Approach)

This paper based on the new empirical industrial organization model (NEIO) examines the impact of market concentration and cost efficiency on bank''s profit rate margin in Iran. The study uses the model developed by Azzam (1997) to evaluate the market power and cost efficiency for 15 active banks in the banking industry. The empirical findings indicate a decrease in the market power of banks during the period 2001-2011. It is also shown that the conjectural variations index associated with the loans is -0. 96، while demand for the loans is completely inelastic where its value is near to 0. 087. Additionally، The market power and cost efficiency in the banking industry have been estimated 0. 37 and -0. 30 respectively meaning a decrease about 0. 3 percent for the bank''s profit rate due to the efficiency of cost and an increase about 0. 07 percent due to the concentration.