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Investment interdependence and the coordination of lumpy investments: evidence from the British brick industry

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  • Andrew Wood

Abstract

The brick industry is characterized by regional markets, lumpy capacity increments and high fixed costs. In such an industry, the coordination of rival expansions in capacity can be crucial to the profitability of those expansions. Evidence from the British brick industry suggests that excess investments are generally avoided, but there is little support for existing theories to explain how this is achieved. The explanation for how coordination failures are avoided is based on firm heterogeneity, the regional dimension to the investment decision and the prospects for, and consequences of, growth by acquisition.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 1 ()
Pages: 37-49

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Handle: RePEc:taf:applec:v:37:y:2005:i:1:p:37-49

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  1. Christensen, Laurits Rolf & Caves, Richard E, 1997. "Cheap Talk and Investment Rivalry in the Pulp and Paper Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 47-73, March.
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  6. Gilbert, Richard & Harris, Richard G., 1984. "Competition with Lumpy Investment," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt11v5q20z, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  8. Spencer, Barbara J. & Brander, James A., 1992. "Pre-commitment and flexibility : Applications to oligopoly theory," European Economic Review, Elsevier, vol. 36(8), pages 1601-1626, December.
  9. Booth, D L, et al, 1991. "An Empirical Model of Capacity Expansion and Pricing in an Oligopoly with Barometric Price Leadership: A Case Study of the Newsprint Industry in North America," Journal of Industrial Economics, Wiley Blackwell, vol. 39(3), pages 255-76, March.
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Cited by:
  1. Ulrich Doraszelski & Mark Satterthwaite & Lauren Xiaoyuan Lu & David Besanko, 2009. "Lumpy Capacity Investment and Disinvestment Dynamics," 2009 Meeting Papers, Society for Economic Dynamics 106, Society for Economic Dynamics.
  2. Besanko, David & Doraszelski, Ulrich & Lu, Lauren Xiaoyuan & Satterthwaite, Mark, 2010. "On the role of demand and strategic uncertainty in capacity investment and disinvestment dynamics," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 383-389, July.

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