Strategic investment and excess capacity: A study of the Taiwanese flour industry

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Strategic investment and excess capacity: A study of the Taiwanese flour industry

Author Info

Tay-Cheng Ma () (National Kaohsiung University of Applied Sciences)

Abstract

The 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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Publisher Info
Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VIII (2005)
Issue (Month): (May)
Pages: 153-170
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Handle: RePEc:cem:jaecon:v:8:y:2005:n:1:p:153-170

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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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Other versions:
- Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1995. "Capacity precommitment as a barrier to entry: a Bertrand-Edgeworth approach," Staff Report 187, Federal Reserve Bank of Minneapolis. [Downloadable!]
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Other versions:
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Other versions:
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Other versions:
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Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May. [Downloadable!] (restricted)

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