The Effects of Income Diversification on Market Power in the Iranian Banking System

The purpose of this research was to investigate the effects of income diversification strategies on market power in Iranian banking system during the period of 2015-2020. The fitting method of the present study was the Generalized Method of Moments (GMM) model. Market power in banking system is measured by the Lerner index using the Translog stochastic frontier cost function. Two adjusted Herfindahl-Hirschman indices are used to measure income diversification strategies, including interest and non-interest income diversifications. The results showed that the non-interest income diversification strategy had a significant positive effect on market power in the banking system; however, the effect of the interest income diversification strategy on the market power was not confirmed.