Market Structure and Concentration in Islamic and Conventional Banking

This paper investigates the market structure and the degree of concentration of Islamic banking industry. This paper reports an empirical assessment of competitive conditions among the Arab GCC banking industry during the years of 2005-2010. We opt for a methodology as proposed by Panzar and Rosse based on a nonstructural estimation of the H-statistic and the most frequently applied measures of concentration k-bank concentration ratio (CRk), Herfindahl–Hirschman Index (HHI), and the measure of entropy. The results show that conventional banking industry is more concentrated than the Islamic banking industry. However the measure of entropy confirms that the market structure of Islamic and conventional banking is almost similar with reference to total deposits and totals loans. The empirical evidence reveals that the banking industry in general and the conventional banking industry in the region operate under perfect competition; the prevailing market structure in Islamic banking industr