This paper analyzes banking market structure using unbalanced panel data models for 17 banks functioning in Iran's economy, spanning 1996-2008. To study market structure, various measures of market concentration are examined theoretically; however, the U index of concentration is applied in Iran's banking sector for the first time. The results showed that along with the commencement of privatization in Iran's banking sector (2001), U index of concentration has tended to decrease gradually, meaning that competition in Iran's banking market is to intensify in the long run. This can be justified regarding the sensitivity of U index to the entrance of new banks (a=0.784). Therefore, banking market competition may intensify just in case some policy measures are taken in this respect.