Strategic investment and excess capacity: A study of the Taiwanese flour industry

Tay-Cheng Ma ()
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Tay-Cheng Ma: National Kaohsiung University of Applied Sciences, http://www.kuas.edu.tw/english/index.asp

Journal of Applied Economics, 2005, vol. 8, 153-170

Abstract: The Taiwanese flour industryÂ’s capacity utilization rate has maintained an extremely low level of 40% for more than 20 years. This article sets up a two-stage game model and uses the strategic effect of the firmÂ’s capital investment on its rivalsÂ’ outputs to explain the nature of this excess capacity. The model is tested with panel data from the Taiwanese flour industry by using non-linear three-stage least squares. The evidences indicate that a large capacity built in the past could have been used strategically to reduce other firmsÂ’ outputs, in the context of a concerted action among the incumbent firms.

Keywords: strategic investment; two-stage game; collusion; conjectural variation (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:8:y:2005:n:1:p:153-170

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