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Capacity and Competition: Empirical Evidence on UK Panel Data

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  • Haskel, Jonathan
  • Martin, Christopher

Abstract

Following D. Kreps and J. Scheinkman (1983), it is common to view the difference between Cournot and Bertrand competition as depending on production capacity. Bertrand undercutting is only feasible if firms have capacity to serve the market gained. If firms are capacity constrained, the Cournot model is more appropriate. This paper tests the capacity and competition idea by looking at the relationship between profits and capacity constraints; if capacity constrained firms become more Cournot-like, it should be positive. Using survey data on capacity constraints merged into a panel industry data set for the United Kingdom, the authors find a robust positive relationship. Copyright 1994 by Blackwell Publishing Ltd.

Suggested Citation

  • Haskel, Jonathan & Martin, Christopher, 1994. "Capacity and Competition: Empirical Evidence on UK Panel Data," Journal of Industrial Economics, Wiley Blackwell, vol. 42(1), pages 23-44, March.
    • Handle: RePEc:bla:jindec:v:42:y:1994:i:1:p:23-44
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    Cited by:

    1. Gilbert Cette & Rémy Lecat & Ahmed Ould Ahmed Jiddou, 2016. "Margin rate and the cycle: the role of trade openness," Applied Economics, Taylor & Francis Journals, vol. 48(37), pages 3569-3575, August.
    2. Dedman, Elisabeth & Lennox, Clive, 2009. "Perceived competition, profitability and the withholding of information about sales and the cost of sales," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 210-230, December.
    3. Arrieta Paredes, Mary-Paz, 2004. "Capacity Expansions timing patterns in the United Kingdom’s petroleum refining industry between 1948 and 1998," MPRA Paper 32239, University Library of Munich, Germany.
    4. Albert Banal-Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2006. "Merger Clusters during Economic Booms," CIG Working Papers SP II 2006-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    5. Yungho Weng & Chih-Ming Hung, 2020. "Tariff escalation and de-escalation: the role of market structure," The Japanese Economic Review, Springer, vol. 71(2), pages 233-246, April.
    6. Michael Pfaffermayr, 1999. "Conjectural-variation models and supergames with price competition in a differentiated product oligopoly," Journal of Economics, Springer, vol. 70(3), pages 309-326, October.
    7. Banal-Estanol, A. & Heidhues, P., 2006. "Merged clusters during economic booms," Working Papers 06/07, Department of Economics, City University London.
    8. Richard Frankel & Joshua Lee & Zawadi Lemayian, 2018. "Proprietary costs and sealing documents in patent litigation," Review of Accounting Studies, Springer, vol. 23(2), pages 452-486, June.
    9. Peter Lukacs, 2000. "A decomposition of price-cost margins in UK manufacturing," Applied Economics Letters, Taylor & Francis Journals, vol. 7(10), pages 681-686.
    10. Dong, Baomin & Guo, Guixia & Qian, Xiaolin & Wang, Frank Yong, 2016. "Capacity Constraint, Merger Paradox And Welfare-Improving Pro-Merger Policy," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 57(1), pages 1-26, June.
    11. Chad Fiechter & Todd Kuethe & David B. Oppedahl, 2021. "Perceived Competition in Agricultural Lending: Stylized Facts and an Agenda for Future Research," Working Paper Series WP-2021-16, Federal Reserve Bank of Chicago.
    12. Weiss, C.R., 2000. "Determinanten und Zyklik der Profite im produzierenden Ernährungsgewerbe Deutschlands," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 36.
    13. Richard J. Arend, 2022. "Breaking Cournot: The Effects of Capacity-Adjusting Technology," JRFM, MDPI, vol. 15(9), pages 1-11, August.
    14. Knudsen, Eirik Sjåholm, 2019. "Bad weather ahead: Pre-recession characteristics and the severity of recession impact," Journal of Business Research, Elsevier, vol. 104(C), pages 118-130.
    15. Roma, Paolo & Perrone, Giovanni, 2016. "Cooperation among competitors: A comparison of cost-sharing mechanisms," International Journal of Production Economics, Elsevier, vol. 180(C), pages 172-182.
    16. Cherchye, Laurens & Verriest, Arnt, 2016. "The impact of home-country institutions and competition on firm profitability," International Business Review, Elsevier, vol. 25(4), pages 831-846.
    17. Arrieta Paredes, Mary-Paz, 2004. "The timing of capacity expansions as barriers to mobility in the United Kingdom’s petroleum refining industry between 1948 and 1998," MPRA Paper 32231, University Library of Munich, Germany.
    18. Spiegel, Yossi & Stahl, Konrad, 2014. "Industry structure and pricing over the business cycle," ZEW Discussion Papers 14-039, ZEW - Leibniz Centre for European Economic Research.
    19. Michal Król, 2012. "‘Everything must go!’- Cournot as a Stable Convention within Strategic Supply Function Competition," Economics Discussion Paper Series 1217, Economics, The University of Manchester.
    20. Zach Zhizhong Zhou & Kevin Xiaoguo Zhu, 2010. "The Effects of Information Transparency on Suppliers, Manufacturers, and Consumers in Online Markets," Marketing Science, INFORMS, vol. 29(6), pages 1125-1137, 11-12.
    21. Marcos Lima & Marcelo Resende, 2004. "Profit margins and business cycles in the Brazilian industry: a panel data study," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 923-930.
    22. Ani L. Katchova & Ian M. Sheldon & Mario J. Miranda, 2005. "A dynamic model of oligopoly and oligopsony in the U.S. potato-processing industry," Agribusiness, John Wiley & Sons, Ltd., vol. 21(3), pages 409-428.
    23. Karmarkar, Uday S. & Rajaram, Kumar, 2012. "Aggregate production planning for process industries under oligopolistic competition," European Journal of Operational Research, Elsevier, vol. 223(3), pages 680-689.
    24. Ciaran Driver, 2000. "Capacity Utilisation and Excess Capacity: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(1), pages 69-87, February.

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