Strategic Investment and Excess Capacity: A Study of the Taiwanese Flour Industry

The Taiwanese flour industry’s capacity utilization rate has maintained an extremely low level of 40% for more than 20 years. This article sets up a two-stage game model and uses the strategic effect of the firm’s capital investment on its rivals’ outputs to explain the nature of this excess capacity. The model is tested with panel data from the Taiwanese flour industry by using non-linear three-stage least squares. The evidences indicate that a large capacity built in the past could have been used strategically to reduce other firms’ outputs, in the context of a concerted action among the incumbent firms.


Issue Date:
2005-05
Publication Type:
Journal Article
DOI and Other Identifiers:
Pring ISSN 1514-0326 (Other)
Online ISSN 1667-6726 (Other)
PURL Identifier:
http://purl.umn.edu/37516
Published in:
Journal of Applied Economics, Volume 08, Number 1
Page range:
153-170
Total Pages:
18
JEL Codes:
L13




 Record created 2017-04-01, last modified 2017-04-27

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