A Note on Holding Excess Capacity to Deter Entry in a Labour-Managed Industry

Shoji Haruna

Canadian Journal of Economics, 1996, vol. 29, issue 2, 493-99

Abstract: In this paper, J. Zhang's (1993) investigation on whether an established labor-managed firm carries capacity that would be left idle if entry did not occur is reconsidered. To analyze the use of excess capacity as an entry deterrent, the author presents an extended model with a general constant-returns-to-scale production function instead of the Leontief production function assumed by Zhang. It is shown that the result of Zhang that the labor-managed firm LMF carries excess capacity also holds for the constant-returns-to-scale production function. Furthermore, the author examines the global stability of the labor-managed firm postentry Nash equilibrium.

Date: 1996
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