Assessing the Impact of Horizontal Integration on Competition in Iran’s Banking Sector: The Panzar-Rosse Approach

This study aimed to examine degree of competition, and how horizontal integration decision affects market structure in Iran’s banking industry. The horizontal integration impact is measured using H-statistic proposed by Panzar and Rosse (1987) based on historical data over the period 2010-2018. We calculate H-statistic in different scenarios including bankruptcy, market power of deposit market, credit risk and operational risk and the estimated H-statistics for these scenarios are -1.31, -1.48, -1.88 and -1.15 respectively. Also, regarding the market situation before integration decisions, the calculated H-statistic is -1.05 leading us to evaluate competitive effects of banking integration scenarios. The results show that operational risk scenario had the lowest negative effect on degree of competition while the highest negative effect was from credit risk scenario.