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Postentry Investment and Market Structure in the Chemical Processing Industries

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  • Marvin B. Lieberman

Abstract

This article analyzes the investment response of incumbents to new entry in 39 chemical product industries. The behavior of incumbents in highly concentrated industries differed from that of incumbents in low-concentration industries. In concentrated industries incumbents increased their rate of investment following entry, but reduced investment to accommodate capacity expansions made by other incumbents. This asymmetric response did not arise in less concentrated industries. Significant excess capacity existed in concentrated industries following entry, but there is little evidence that incumbents built such capacity as a deterrent before entry. Thus, the results support "mobility-deterrence" theories rather than the conventional excess-capacity deterrence argument.

Suggested Citation

  • Marvin B. Lieberman, 1987. "Postentry Investment and Market Structure in the Chemical Processing Industries," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 533-549, Winter.
    • Handle: RePEc:rje:randje:v:18:y:1987:i:winter:p:533-549
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    Cited by:

    1. 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.
    2. Bergman, Mats A. & Johansson, Per & Bergman, M.A., 2002. "Large investments in the pulp and paper industry: a count data regression analysis," Journal of Forest Economics, Elsevier, vol. 8(1), pages 29-52.
    3. Yang, Shu-Jung Sunny & Anderson, Edward James, 2014. "Competition through capacity investment under asymmetric existing capacities and costs," European Journal of Operational Research, Elsevier, vol. 237(1), pages 217-230.
    4. Yamawaki, Hideki, 2002. "Price reactions to new competition: A study of US luxury car market, 1986-1997," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 19-39, January.
    5. Le Coq, Chloé & Sturluson, Jon Thor, 2012. "Does opponents’ experience matter? Experimental evidence from a quantity precommitment game," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 265-277.
    6. Jan W. Rivkin, 2001. "Reproducing Knowledge: Replication Without Imitation at Moderate Complexity," Organization Science, INFORMS, vol. 12(3), pages 274-293, June.
    7. Bergman, Mats A. & Johansson, Per, 2000. "Strategic Investments in the Pulp and Paper Industry: A Count Data Regression Analysis," Working Paper Series 536, Research Institute of Industrial Economics.
    8. Caves, Richard E., 2007. "In praise of the Old I.O," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 1-12, February.
    9. Anne Marie Knott & David J. Bryce & Hart E. Posen, 2003. "On the Strategic Accumulation of Intangible Assets," Organization Science, INFORMS, vol. 14(2), pages 192-207, April.
    10. Yeolan Lee & William I. Mackenzie & Eric A. Fong & J. Daniel Sherman, 2016. "The Importance Of Inter-Temporal Integration In New Product Development," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 20(03), pages 1-23, April.
    11. Thomas, Louis A., 1999. "Incumbent firms' response to entry: Price, advertising, and new product introduction," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 527-555, May.
    12. Dawid, Herbert & Kopel, Michael & Kort, Peter M., 2010. "Innovation threats and strategic responses in oligopoly markets," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 203-222, August.
    13. Bilgehan Uzunca & Bruno Cassiman, 2023. "Entry diversion: Deterrence by diverting submarket entry," Strategic Management Journal, Wiley Blackwell, vol. 44(1), pages 11-47, January.
    14. David Genesove & Wallace P. Mullin, 2006. "Predation and its rate of return: the sugar industry, 1887–1914," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 47-69, March.

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