Capacity Commitment and Licensing

Arijit Mukherjee

No KERP 2002/05, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: The theoretical literature on industrial organization has been argued that firms hold excess capacity to deter entry. However, empirical analysis did not provide much support to this hypothesis. In this paper we show that the dominant firms may hold excess capacity not for entry deterrence but for getting higher benefit from other business strategy such as licensing.We show that co-existence of licensing and excess capacity can be found if the marginal costs of the firms are small enough.

Keywords: Capacity commitment; Entry; Excess capacity; Incumbent; Licensing (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2002-05
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Working Paper: Capacity Commitment and Licensing (2002)
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