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Entry‐Deterring Capacity in the Texas Lodging Industry

Michael Conlin () and Vrinda Kadiyali

Journal of Economics & Management Strategy, 2006, vol. 15, issue 1, 167-185

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.

Date: 2006
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Handle: RePEc:bla:jemstr:v:15:y:2006:i:1:p:167-185