Excess Capacity as a Barrier to Entry: An Empirical Appraisal

This paper examines excess capacity barriers to entry and investment dynamics in a sample of thirty-eight chemical product industries. Logit and log-linear models of investment behavior are estimated, and specific case examples are considered. The results show that incumbents rarely built excess capacity preemptively in an effort to deter entry. In general, entrants and incumbents exhibited similar investment behavior.