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Capacity Commitment and Licensing

Author

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  • Arijit Mukherjee

    () (Keele University, Department of Economics)

Abstract

The theoretical literature on industrial organization has been argued that firms hold excess capacity to deter entry. However, empirical analysis did not provide much support to this hypothesis. In this paper we show that the dominant firms may hold excess capacity not for entry deterrence but for getting higher benefit from other business strategy such as licensing.We show that co-existence of licensing and excess capacity can be found if the marginal costs of the firms are small enough.

Suggested Citation

  • Arijit Mukherjee, 2002. "Capacity Commitment and Licensing," Keele Economics Research Papers KERP 2002/05, Centre for Economic Research, Keele University.
  • Handle: RePEc:kee:kerpuk:2002/05
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    References listed on IDEAS

    as
    1. Kabiraj, Tarun & Marjit, Sugata, 1992. "Technology and price in a non-cooperative framework," International Review of Economics & Finance, Elsevier, vol. 1(4), pages 371-378.
    2. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
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    4. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    5. Marchionatti, Roberto & Usai, Stefano, 1997. "Voluntary Export Restraints, Dumping and Excess Capacity," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(5), pages 499-512, December.
    6. von Ungern-Sternberg, Thomas, 1988. "Excess Capacity as a Commitment to Promote Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 113-122, December.
    7. Kabiraj, Tarun & Marjit, Sugata, 1993. "International technology transfer under potential threat of entry : A Cournot-Nash framework," Journal of Development Economics, Elsevier, vol. 42(1), pages 75-88, October.
    8. Lieberman, Marvin B, 1987. "Excess Capacity as a Barrier to Entry: An Empirical Appraisal," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 607-627, June.
    9. Bulow, Jeremy & Geanakoplos, John & Klemperer, Paul, 1985. "Holding Idle Capacity to Deter Entry [The Role of Investment in Entry Deterrence]," Economic Journal, Royal Economic Society, vol. 95(377), pages 178-182, March.
    10. Arijit Mukherjee, 2001. "Technology transfer with commitment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(2), pages 345-369.
    11. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
    12. Basu, Kaushik & Singh, Nirvikar, 1990. "Entry-Deterrence in Stackelberg Perfect Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 61-71, February.
    13. Marjit, Sugata, 1990. "On a non-cooperative theory of technology transfer," Economics Letters, Elsevier, vol. 33(3), pages 293-298, July.
    14. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
    15. Poddar, S., 1998. "Capacity, Entry and Demand Uncertainty," Papers 148, Indira Gandhi Institute of Development Research-.
    16. Masson, Robert T & Shaanan, Joseph, 1986. "Excess Capacity and Limit Pricing: An Empirical Test," Economica, London School of Economics and Political Science, vol. 53(211), pages 365-378, August.
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    More about this item

    Keywords

    Capacity commitment; Entry; Excess capacity; Incumbent; Licensing;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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