The purpose of current study is to analyze the impact of market competition on profitability of Pakistan’s banking sector and to compare the results of Islamic and conventional banks. Data is collected from the official site of state bank of Pakistan, from year 2007-2018. Data of macroeconomic variables is taken from the website of world bank. Two step Generalized Method of Moments is used for estimating results to capture endogeneity, unobserved heterogeneity and problems related to autocorrelation. The results show that the impact of market competition on profitability of overall banking sector and conventional banks of Pakistan is negative and there is insignificant relationship between market competition and profitability of Islamic banks because the Islamic banks are not operating in highly competitive environment like conventional banks. GDP has negative effect on profitability and inflation is positively related to ROE and negatively to ROA. Bank size has inverse effect on profitability because of bureaucratic influence on large size banks. Capitalization is positively related to overall and conventional banks, but it has insignificant relationship with Islamic banking sector because Islamic banking has strict laws for capitalization. Liquidity has negative sign for coefficient which shows that when liquidity decrease, profitability increase. The results are same for one proxy of profitability i.e. NIM for Islamic banking sector. Diversification is negatively related to profitability of overall and conventional banks because there is more competition in fee generating activities and Islamic banks are insignificantly related to diversification because they are not performing as diversified activities as conventional banks. Supervisor: Dr Abdul Rashid Co. Supervisor: Dr Attiya Javid