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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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    Web: http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi

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    Cited by:
    1. 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.
    2. David Genesove & Wallace Mullin, 2006. "Predation and Its Rate of Return: The Sugar Industry, 1887Ð1914," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 47-69, Spring.
    3. 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.
    4. Caves, Richard E., 2007. "In praise of the Old I.O," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 1-12, February.

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