Thursday, August 13, 2020
This paper studies the relationship between competition and investment incentives in the Taiwanese hotel industry. Using detailed ﬁrm-level investment, revenue, and sales data, I estimate a discrete choice model for consumer demand, then incorporate these estimates into a dynamic model for investment and entry. This model is then used to evaluate the welfare eﬀects of competition policies. Counterfactual analysis shows that a 20% reduction in entry costs leads to more hotels and lower prices; however, investments decrease by 13%, and thus the overall average quality of hotels decreases. This indicates that consumers may not actually benefit from more competitive market structures.