The Change in Structure of Taiwan's Domestic Air Market before and after Deregulation

Abstract

This paper investigates the influences of deregulation on Taiwan's domestic air market, which took place in 1987. The Herfindahl-Hirschman Index, the number of effective competitors, and the concentration ratio of a defined market are used to measure the associated market structure. The market structures of three selected flight routes and the entire domestic air market of Taiwan are analysed using a time-series data set spanning 21 years. Research results indicate that the market structure indicators of all defined markets were volatile after deregulation and then became stable again, with the recent market competition being greater than it was before. This reveals that market competition increased due to deregulation – in both the entire market and the markets of specific flight routes. While the domestic air market of Taiwan is unique – with relatively short flight times and fewer numbers of airlines in the market as compared with markets that are investigated in the literature using the same indicators – the results are promising in that those indices capture the variation of Taiwan's domestic air market due to the implementation of the deregulation policy. It implies that those measures are also suitable for markets with a relatively low degree of competition or which are relatively small scale.