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Postentry Investment and Market Structure in the Chemical Processing Industries

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  • Marvin B. Lieberman
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    Abstract

    This article analyzes the investment response of incumbents to new entry in 39 chemical product industries. The behavior of incumbents in highly concentrated industries differed from that of incumbents in low-concentration industries. In concentrated industries incumbents increased their rate of investment following entry, but reduced investment to accommodate capacity expansions made by other incumbents. This asymmetric response did not arise in less concentrated industries. Significant excess capacity existed in concentrated industries following entry, but there is little evidence that incumbents built such capacity as a deterrent before entry. Thus, the results support "mobility-deterrence" theories rather than the conventional excess-capacity deterrence argument.

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    Bibliographic Info

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

    Volume (Year): 18 (1987)
    Issue (Month): 4 (Winter)
    Pages: 533-549

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    Handle: RePEc:rje:randje:v:18:y:1987:i:winter:p:533-549

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    Web page: http://www.rje.org

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    Cited by:
    1. Glenn Ellison & Sara Fisher Ellison, 2007. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," NBER Working Papers 13069, National Bureau of Economic Research, Inc.
    2. David Genesove & Wallace P. Mullin, 2006. "Predation and its rate of return: the sugar industry, 1887–1914," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 47-69, 03.
    3. Caves, Richard E., 2007. "In praise of the Old I.O," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 1-12, February.
    4. Bergman, Mats A. & Johansson, Per & Bergman, M.A., 2002. "Large investments in the pulp and paper industry: a count data regression analysis," Journal of Forest Economics, Elsevier, vol. 8(1), pages 29-52.
    5. Yamawaki, Hideki, 2002. "Price reactions to new competition: A study of US luxury car market, 1986-1997," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 19-39, January.
    6. Dawid, Herbert & Kopel, Michael & Kort, Peter M., 2010. "Innovation threats and strategic responses in oligopoly markets," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 203-222, August.

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