EuroEconomica, Vol 33, No 1 (2014)

Abstract

The study is an attempt to investigate the nature of competition and market contestability of 35 Pakistani banks for the period of 2007-2011 by employing Panzar and Rosse (PR-model). The test of competition overall sample (2007-2011) suggest that banks in Pakistan in state of monopolistic competition and market is in equilibrium. The sub sample (2007-2009) result of competition and equilibrium are similar as for sample period (2007-2011) suggesting that revenue produced during this period is state of monopolistic competition. Finally the results of sample period (2010-2011) suggest that banks in Pakistan are instate of perfect competition however, the market in not in long-run equilibrium. The results have interesting policy implications; it is suggested to encourage the foreign banks presence to improve the competitive condition of banking industry so that to ensure the exit and entrance of banks in the industry to increase the competition and produce the variety of product to improve banks performance and customer satisfaction.