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Entry‐Deterring Capacity in the Texas Lodging Industry

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  • Michael Conlin
  • Vrinda Kadiyali

Abstract

This paper empirically tests whether capacity is used to deter entry and whether the amount invested in entry‐deterring capacity is related to market concentration and market presence. We use a unique dataset containing 3,830 lodging properties in Texas from 1991 through 1997. We find that there is higher investment in capacity relative to demand (i.e., idle capacity) in markets with a larger Herfindahl index and by firms with a larger share of market capacity. These results are consistent with the entry deterrence literature that suggests firms in more concentrated markets and firms with a larger market share have greater incentive to invest in entry‐deterring capacity.

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  • Michael Conlin & Vrinda Kadiyali, 2006. "Entry‐Deterring Capacity in the Texas Lodging Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 167-185, March.
    • Handle: RePEc:bla:jemstr:v:15:y:2006:i:1:p:167-185
    DOI: 10.1111/j.1530-9134.2006.00096.x
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    1. repec:hoo:wpaper:e-90-20 is not listed on IDEAS
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    Cited by:

    1. Sheng-Ping Yang, 2018. "Entry and Exit Decisions with Switching Regime Excess Capacity," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(4), pages 351-369, November.
    2. Vroom, Govert & Mccann, Brian T., 2009. "Ownership structure, profit maximization, and competitive behavior," IESE Research Papers D/800, IESE Business School.
    3. Brian T. McCann & Govert Vroom, 2014. "Competitive Behavior and Nonfinancial Objectives: Entry, Exit, and Pricing Decisions in Closely Held Firms," Organization Science, INFORMS, vol. 25(4), pages 969-990, August.
    4. Hernán Herrera Echeverry, 2007. "Lanzamiento de nuevas marcas en industrias de productos homogéneos básicos con altos niveles de concentración," Documentos de Trabajo de Valor Público 11812, Universidad EAFIT.
    5. Clarissa Yeap, 2011. "Capacity use in multi-unit firms: evidence for efficiency gains or strategic competition in the US restaurant industry?," Applied Economics, Taylor & Francis Journals, vol. 43(22), pages 2953-2968.
    6. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
    7. Kyle Wilson, 2016. "Does Public Competition Crowd Out Private Investment? Evidence from Municipal Provision of Internet Access," Working Papers 16-16, NET Institute.
    8. Eric Van den Steen, 2018. "The Strategy in Competitive Interactions," Strategy Science, INFORMS, vol. 3(4), pages 574-591, December.
    9. Arturs Kalnins, 2006. "Markets: The U.S. Lodging Industry," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 203-218, Fall.
    10. John Kwoka & Birzhan Batkeyev, 2019. "Strategic Responses to Competitive Threats: Airlines in Action," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 83-109, February.
    11. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    12. Hernán Herrera Echeverry, 2008. "Innovación e incumbent failure: Una ilustración usando la industria de las telecomunicaciones en Colombia," Documentos de Trabajo de Valor Público 11811, Universidad EAFIT.
    13. Helmers, Claes Gustav & Connor, John M. & Florax, Raymond J.G.M. & Vroom, Govert, 2009. "Entry, Ownership Form, and Spatial Location: An Analysis of the Hotel Industry," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49561, Agricultural and Applied Economics Association.
    14. Guthrie, Graeme, 2020. "Investment flexibility as a barrier to entry," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).

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