Strategic investment and excess capacity: A study of the Taiwanese flour industry
AbstractThe Taiwanese flour industry’s capacity utilization rate has maintained an extremely low level of 40% for more than 20 years. This article sets up a two-stage game model and uses the strategic effect of the firm’s capital investment on its rivals’ outputs to explain the nature of this excess capacity. The model is tested with panel data from the Taiwanese flour industry by using non-linear three-stage least squares. The evidences indicate that a large capacity built in the past could have been used strategically to reduce other firms’ outputs, in the context of a concerted action among the incumbent firms.
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Bibliographic InfoArticle provided by Universidad del CEMA in its journal Journal of Applied Economics.
Volume (Year): VIII (2005)
Issue (Month): (May)
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More information through EDIRC
strategic investment; two-stage game; collusion; conjectural variation;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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