Investment and Coordination in Oligopolistic Industries
AbstractWe examine investment by firms in 24 chemical product industries to determine whether firms invest preemptively to achieve persistent increases in market share or whether there is evidence of behavior to maintain market share. The data indicate that investment reduces the probability that rival firms will expand capacity, but the effect is temporary. Large firms tend to maintain market share, while smaller firms tend to invest simultaneously with rivals. The role of preemptive investment is limited to that of permitting a firm to invest with a lower probability of redundant investment by rivals. Preemption does not allow a persistent increase in market share, but instead acts as a means by which firms may coordinate capacity investment to help avoid episodes of industry overcapacity.
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Bibliographic InfoPaper provided by University of California at Berkeley in its series Economics Working Papers with number 8730.
Date of creation: 01 Feb 1987
Date of revision:
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Postal: University of California at Berkeley, Berkeley, CA USA
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Other versions of this item:
- Richard J. Gilbert & Marvin Lieberman, 1987. "Investment and Coordination in Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 17-33, Spring.
- Gilbert, Richard J., 1987. "Investment and Coordination in Oligopolistic Industries," Department of Economics, Working Paper Series qt51b0f7sq, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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