The Market Structure-Profit Relationship in the Jordan’s Banking Industry

Idries M. Al-Jarrah

Abstract


This study examines the structure-profit relationship in the Jordan’s banking industry. The study sample consists of all the local banks operating in the market over the 2001-2005 period. The study hypotheses are divided into two parts. First the hypotheses related to the market power structure which includes the traditional structure-conduct-performance hypothesis (MP) and the relative market power hypothesis (RMP). Second, the hypotheses related to the efficient structure (ES) which includes X-efficiency hypothesis (ESX) and scale efficiency hypothesis. Tests of the hypotheses are performed by regressing profits against measures of concentration, market share, X-efficiency, and scale efficiency.

The empirical results generally support the traditional SCP hypothesis; with limited support to the scale-efficiency version of the efficient structure (ESS) in the Jordanian’s banking industry over the study period. Thus, the main implication of these results for the policymakers, of Jordanian’s banking sector, is to expand the ongoing deregulation efforts with the aim of reducing the industry concentration and enhancing the market competitiveness.


Keywords


The Jordan’s Banking Industry, Cost Efficiency, The Distribution Free Approach, The Relative Market Power, The Efficient Structure Hypothesis, X-Efficiency, Scale-Efficiency.

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