This article aims to test Sutton's 'lower bounds' approach on the analysis of market concentration in a small open economy like Taiwan. Exporting, which is important to a small open economy, is also considered in order to investigate the role of foreign competition on the market structure. Using a stochastic frontier approach, the estimate findings are in accordance with Sutton's predictions, whereby the lower bounds for high advertising and/or R&D-intensive industries are higher than those for low advertising and/or R&D-intensive industries in Taiwan. At the same time, the lower bounds of concentrations for export-intensive industries do not differ significantly from that of nonexport-intensive industries. The deviations from the lower bound are explained by industry characteristics such as the cost disadvantage ratio, the share of small and median-size enterprises, turnover rate and growth rate.