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Chronic Excess Capacity in U.S. Industry


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  • Robert E. Hall


Previous research has suggested that firms in a number of industries have considerable market power, in the sense that their prices exceed their marginal costs. However, the observed profits of those industries are not nearly as high as would occur under full exploitation of the market power with a constant returns technology. Rather, because of fixed costs associated with a minirnumn scale of operation or for other reasons, industry equilibriumn occurs at a point where no abnormal returns are earned, even though market power exists. This inference is supported by an empirical study that shows that most industries hold capital far beyond the point that would minimize cost given their actual output. In this sense, the industries have chronic excess capacity.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1973.

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Date of creation: Jul 1986
Date of revision:
Publication status: Published as "The Relation Between Price and Marginal Cost in U.S.Industry" , JPE, Vol. 96, no. 5 (1988): 921-947.
Handle: RePEc:nbr:nberwo:1973

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Cited by:
  1. Matthew D. Shapiro, 1987. "Measuring Market Power in U.S. Industry," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 828, Cowles Foundation for Research in Economics, Yale University.


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