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Excess Capacity as a Commitment to Promote Entry

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  • Thomas VON UNGERN-STERNBERG

Abstract

Excess capacities held by a dominant firm are usually viewed as ant icompetitive because they constitute a barrier to entry. This paper explores an alternative reason for a dominant firm to hold excess capacities: they serve as an assurance to upstream (or downstream) companies that the dominant firm will not behave opportunistically once they have made their sunk investments. Excess capacities held for this reason lead to a welfare (Pareto) improvement. Copyright 1988 by Blackwell Publishing Ltd.

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Bibliographic Info

Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 8801.

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Length: 12 pages
Date of creation: Jan 1988
Date of revision:
Publication status: Published in The Journal of Industrial Economics, 1988, pp. 113-122
Handle: RePEc:lau:crdeep:8801

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Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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Related research

Keywords: enterprises; production capacity; investments; trade barriers;

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Cited by:
  1. Arijit Mukherjee, 2002. "Capacity Commitment and Licensing," Keele Economics Research Papers KERP 2002/05, Centre for Economic Research, Keele University.
  2. Mikhael Shor, 2008. "An experiment on strategic capacity reduction," Working papers 2012-22, University of Connecticut, Department of Economics.
  3. Wu, Wei-Ming, 2009. "An approach for measuring the optimal fleet capacity: Evidence from the container shipping lines in Taiwan," International Journal of Production Economics, Elsevier, vol. 122(1), pages 118-126, November.

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