An Empirical Study on Factors of Concentration in Taiwan Manufacturing Industry

According to the industrial economics, the more firms enter, the more competitive a market becomes. Thus, it fosters the remaining firms become much productive under the assumption of other things being equal. Studying on how the extent of competition in markets influences the entry of firms, therefore, is a critical issue. On the other hand, the industrial economics reveals that the extent of competition may also impact the entry of firm. That is, there is an interaction relationship between the entry of firms and the extent of competition. Preceding related articles, however, focus either on the influence of firm entry on the competition, or on the effect of competition on firm entry. Consequently, this paper will examine the interactions between firm entry and competition to comprehend the influence of firm entry on the competition, and to analyze the factors of firm entry. By means of Taiwan manufacturing census data in 1986-1996, this paper examines the relation between firm entry and competition in 1986-1991 and in 1991-1996, respectively. The subjects of study are the number of firms that began operations, four-firm concentration ratio, and price-cost margins. The regressions of entry-determined equation and competitive variation equation are created, and 2SLS is employed to analyze the relation between firm entry and competition of Taiwan manufacturing industry.