Parametric Investigation of Lerner Index in the Bank Deposits and Loan Market Using the Translog Cost Function

The aim of this paper is to investigate the monopolistic power of Iran’s banking industry by parametric approach. For this purpose, the Lerner index was calculated in the bank deposits and loan markets using the Translog stochastic frontier cost function and using banking data including balance sheet and profit and loss statement of 33 banks during1380-1393. The results showed that monopolistic power of banking industry in the loan market has decreased over time and competitive conditions somewhat have been improved, so that the Lerner index for loan market in 1380 has been decreased from 0.77 to 0.54 in 1393. However, the gap between price and marginal cost is rather high level. Also, the Lerner index of deposit market has been fluctuated between 0.5 and 0.33, so that in some years the index has been risen and in some other years it has been fallen. In the end, according to research findings perfect competition hypothesis was not confirmed in both loan and deposit market of Iran’s banking industry.