Impact of Economies of Scale on Competition in the Banking Industry

In order to investigate the effect of economies of scale on the size of competition in the banking industry, in this study, the benefits the scale in the banking products is estimated in the Iranian money market with using the translog multiprocess cost function. This paper surveys 18 active banks during 2008–2016. Then, the calculated economies of scale in the banking industry is analyzed by the Bootstrap method. The results show Panzar and Rosse H-statistic rise with an increase in the economies of scale. Then changes in H-statistic which are following the increase in the economies of scale are accompanied by an increase in the monopoly power in the money market in Iran. This finding is driven by comparing the two situations: the market structure with and without the economies scales. Finally, these findings are confirmed by 200 Bootstrap iteration.