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Capacity Commitment and Licensing

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  • Arijit Mukherjee

    ()
    (Keele University, Department of Economics)

Abstract

The theoretical literature on industrial organization has been argued that firms hold excess capacity to deter entry. However, empirical analysis did not provide much support to this hypothesis. In this paper we show that the dominant firms may hold excess capacity not for entry deterrence but for getting higher benefit from other business strategy such as licensing.We show that co-existence of licensing and excess capacity can be found if the marginal costs of the firms are small enough.

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File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0205.pdf
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Bibliographic Info

Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2002/05.

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Length: 20 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:kee:kerpuk:2002/05

Contact details of provider:
Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

Related research

Keywords: Capacity commitment; Entry; Excess capacity; Incumbent; Licensing;

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References

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  1. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
  2. Bulow, Jeremy & Geanakoplos, John & Klemperer, Paul, 1985. "Holding Idle Capacity to Deter Entry [The Role of Investment in Entry Deterrence]," Economic Journal, Royal Economic Society, vol. 95(377), pages 178-82, March.
  3. Basu, Kaushik & Singh, Nirvikar, 1990. "Entry-Deterrence in Stackelberg Perfect Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 61-71, February.
  4. von Ungern-Sternberg, Thomas, 1988. "Excess Capacity as a Commitment to Promote Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 113-22, December.
  5. Kabiraj, Tarun & Marjit, Sugata, 1993. "International technology transfer under potential threat of entry : A Cournot-Nash framework," Journal of Development Economics, Elsevier, vol. 42(1), pages 75-88, October.
  6. Lieberman, Marvin B, 1987. "Excess Capacity as a Barrier to Entry: An Empirical Appraisal," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 607-27, June.
  7. Arijit Mukherjee, 2001. "Technology transfer with commitment," Economic Theory, Springer, vol. 17(2), pages 345-369.
  8. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
  9. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  10. Kabiraj, Tarun & Marjit, Sugata, 1992. "Technology and price in a non-cooperative framework," International Review of Economics & Finance, Elsevier, vol. 1(4), pages 371-378.
  11. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  12. Benoit, Jean-Pierre & Krishna, Vijay, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 23-35, January.
  13. Marchionatti, Roberto & Usai, Stefano, 1997. "Voluntary Export Restraints, Dumping and Excess Capacity," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(5), pages 499-512, December.
  14. Masson, Robert T & Shaanan, Joseph, 1986. "Excess Capacity and Limit Pricing: An Empirical Test," Economica, London School of Economics and Political Science, vol. 53(211), pages 365-78, August.
  15. Marjit, Sugata, 1990. "On a non-cooperative theory of technology transfer," Economics Letters, Elsevier, vol. 33(3), pages 293-298, July.
  16. Poddar, S., 1998. "Capacity, Entry and Demand Uncertainty," Papers 148, Indira Gandhi Institute of Development Research-.
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