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Capacity as a Commitment Instrument in Multi-Market Competition

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Market Evolution

Part of the book series: Studies in Industrial Organization ((SIOR,volume 20))

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Abstract

In capital-intensive industries, investments in production capacity can be instruments in competition and, in particular, in entry deterrence. The incumbent firm’s strategy will take into account the identity of the entrant because new firms pose a different threat than established-firm entrants (e.g., importers). The chapter argues that the appropriate framework is multi-market competition, where firms compete in several — product and factor — markets. The framework integrates both recent game-theoretic modeling as well as an older industrial economics, associated with P.W.S. Andrews. An example of the U.S. steel market illustrates that capacity is a commitment instrument only in a special, historic, setting.

I thank Arjen van Witteloostuijn for comments and the audiences of the 19th annual EARIE conference in Stuttgart, September 1992, and the EEA Summer School on New Trade and Growth Theory in Florence, September 1992, for lively discussions.

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Authors and Affiliations

  1. Department of Economics and Business Administration, University of Limburg, Maastricht, The Netherlands

    Marc van Wegberg

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  1. Marc van Wegberg
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Editors and Affiliations

  1. University of Limburg, Maastricht, The Netherlands

    Arjen van Witteloostuijn

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© 1995 Springer Science+Business Media Dordrecht

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van Wegberg, M. (1995). Capacity as a Commitment Instrument in Multi-Market Competition. In: van Witteloostuijn, A. (eds) Market Evolution. Studies in Industrial Organization, vol 20. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-8428-9_12

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  • DOI: https://doi.org/10.1007/978-94-015-8428-9_12

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-90-481-4523-2

  • Online ISBN: 978-94-015-8428-9

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