Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, August 13, 2020

Competition and Investment: Empirical Evidence from Hotel Industry in Taiwan

Competition and Investment: Empirical Evidence from Hotel Industry in Taiwan

Fang-Chang Kuo

National Chung Cheng University - Department of Economics

Abstract

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.

https://lawprofessors.typepad.com/antitrustprof_blog/2020/08/competition-and-investment-empirical-evidence-from-hotel-industry-in-taiwan.html

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