Deregulation, contestability and market structure for banks in Taiwan

Chang-Sheng Liao

Journal of the Asia Pacific Economy, 2022, vol. 27, issue 4, 620-639

Abstract: This is the first study to integrate structural and non-structural approaches into the evaluation of competitive conditions for banks in Taiwan. It is found that the results of structural and non-structural approaches are compatible. This study finds that market share may not have a significant impact on banks’ efficiency but may significantly impact profitability. This implies that banks are willing to sacrifice something to expand their market share, such as not enforcing minimum cost targets and wasting resources to raise an already unrealistic market share target. Furthermore, it is essential to pay attention to the observation that the degrees of competition deteriorated after the Global Financial Crisis (GFC). This argues that the transmission mechanism from market structure to performance occurring through product differentiation is able to exercise market power in banks products and earn supernormal profit, which is normally associated with dominant banks and not with collusive behaviour.

Date: 2022
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DOI: 10.1080/13547860.2020.1843591

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