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Investment and Coordination in Oligopolistic Industries

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Author Info
Richard J. Gilbert
Marvin Lieberman

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Abstract

We examine investment by firms in 24 chemical product industries to determine whether firms invest preemptively to achieve persistent increases in market share or whether there is evidence of behavior to maintain market share. The data indicate that investment reduces the probability that rival firms will expand capacity, but the effect is temporary. Large firms tend to maintain market share, while smaller firms tend to invest simultaneously with rivals. The role of preemptive investment is limited to that of permitting a firm to invest with a lower probability of redundant investment by rivals. Preemption does not allow a persistent increase in market share, but instead acts as a means by which firms may coordinate capacity investment to help avoid episodes of industry overcapacity.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 18 (1987)
Issue (Month): 1 (Spring)
Pages: 17-33
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Handle: RePEc:rje:randje:v:18:y:1987:i:spring:p:17-33

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  1. Kofi Nti, 2000. "Potential competition and coordination in a market-entry game," Journal of Economics, Springer, vol. 71(2), pages 149-165, June. [Downloadable!] (restricted)
  2. Besanko, David & Doraszelski, Ulrich & Lu, Lauren Xiaoyuan & Satterthwaite, Mark, 2008. "Lumpy Capacity Investment and Disinvestment Dynamics," CEPR Discussion Papers 6788, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Ciaran Driver & Fabrice Goffinet, 1998. "Investment under Demand Uncertainty, Ex-Ante Pricing, and Oligopoly," Review of Industrial Organization, Springer, vol. 13(4), pages 409-423, August. [Downloadable!] (restricted)
  4. Christiaan Hogendorn, 2003. "Excessive(?) Entry of National Telecom Networks, 1990-2001," Working Papers 03-07, NET Institute, revised Dec 2003. [Downloadable!]
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  5. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  6. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-70, Summer. [Downloadable!] (restricted)
  7. Mas, Nuria & Seinfeld, Janice, 2004. "Is managed care restraining the adoption of technology by hospitals?," IESE Research Papers D/554, IESE Business School. [Downloadable!]
  8. Andrew Wood, 2005. "Investment interdependence and the coordination of lumpy investments: evidence from the British brick industry," Applied Economics, Taylor and Francis Journals, vol. 37(1), pages 37-49, January. [Downloadable!] (restricted)
  9. Steven C. Michael, 2009. "Entrepreneurial signaling to attract resources: the case of franchising," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 405-422. [Downloadable!]
  10. Darryl Seale & Amnon Rapoport, 2000. "Elicitation of Strategy Profiles in Large Group Coordination Games," Experimental Economics, Springer, vol. 3(2), pages 153-179, October. [Downloadable!] (restricted)
  11. Ciaran Driver, 2000. "Capacity Utilisation and Excess Capacity: Theory, Evidence, and Policy," Review of Industrial Organization, Springer, vol. 16(1), pages 69-87, February. [Downloadable!] (restricted)
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