IDEAS home Printed from https://ideas.repec.org/a/rje/randje/v24y1993iwinterp479-502.html
   My bibliography  Save this article

Preemptive Investment with Resalable Capacity

Author

Listed:
  • Murugappa Krishnan
  • Lars-Hendrick Roller

Abstract

We study an entry game under perfect information, with the salient feature that capacity is resalable. We show that an inability to precommit (to final output) can help rather than hurt. In contrast to other analyses of limited commitment (e.g., Maskin-Tirole (1988)), which do not specify the sources of -- or reasons for -- limits to commitment, we assume that such limits arise from the resalable nature of capacity, and are led naturally to a consideration of additional strategic variables that can improve the incumbent's position in our model. Resalability increases the complexity of the incumbent's precommitment problem, but it also furnishes her with an additional source of power -- in our model, the price at which to resell capacity. While a capacity resale market enables capacity to be shared, and can help anticompetitive behavior, the very existence of a resale market can generate an incentive for a much larger initial level of investment, to the point where the overall equilibrium outcome can be more competitive.

Suggested Citation

  • Murugappa Krishnan & Lars-Hendrick Roller, 1993. "Preemptive Investment with Resalable Capacity," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 479-502, Winter.
    • Handle: RePEc:rje:randje:v:24:y:1993:i:winter:p:479-502
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0741-6261%28199324%2924%3A4%3C479%3APIWRC%3E2.0.CO%3B2-F&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Lee, Jeongsik & Kim, Byung-Cheol & Lim, Young-Mo, 2011. "Dynamic competition in technological investments: An empirical examination of the LCD panel industry," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 718-728.
    3. van den Berg, Anita & Bos, Iwan & Herings, P. Jean-Jacques & Peters, Hans, 2012. "Dynamic Cournot duopoly with intertemporal capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 174-192.
    4. Anil Arya & John Fellingham & Jonathan Glover & K. Sivaramakrishnan, 2000. "Capital Budgeting, the Hold-up Problem, and Information System Design," Management Science, INFORMS, vol. 46(2), pages 205-216, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:24:y:1993:i:winter:p:479-502. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.rje.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.