A Test for Strategic Excess Capacity

Klaus Conrad and Michael Veall

Empirical Economics, 1991, vol. 16, issue 4, 433-45

Abstract: It is shown how, using data at the firm level, it may be possible to test for the existence of excess capacity as a strategic weapon to protect market share against competitors and potential entrants. If excess capacity has been found, it is also possible to test the extent of the threat, for example whether sufficient excess capacity is held to drive the firm's own profits to zero if all were employed. Yearly data for a brewery have been used as an example of the tests.

Date: 1991
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