Postentry Investment and Market Structure in the Chemical Processing Industries

Marvin B. Lieberman

RAND Journal of Economics, 1987, vol. 18, issue 4, 533-549

Abstract: This article analyzes the investment response of incumbents to new entry in 39 chemical product industries. The behavior of incumbents in highly concentrated industries differed from that of incumbents in low-concentration industries. In concentrated industries incumbents increased their rate of investment following entry, but reduced investment to accommodate capacity expansions made by other incumbents. This asymmetric response did not arise in less concentrated industries. Significant excess capacity existed in concentrated industries following entry, but there is little evidence that incumbents built such capacity as a deterrent before entry. Thus, the results support "mobility-deterrence" theories rather than the conventional excess-capacity deterrence argument.

Date: 1987
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