Title
Strategic capacity investment under uncertainty Strategic capacity investment under uncertainty
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Mount Morris, Ill. ,
Subject
Economics
Source (journal)
The rand journal of economics. - Mount Morris, Ill.
Volume/pages
46(2015) :2 , p. 376-408
ISSN
0741-6261
ISI
000353455400007
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
This article considers investment decisions within an uncertain dynamic and duopolistic framework. Each investment decision involves to determine the timing and the capacity level. The simultaneous analysis of timing and capacity decisions extends work on entry deterrence/accommodation to consider a timing/delay element. We find that, when applying an entry deterrence policy, the first investor, or incumbent, overinvests in capacity for two reasons. First, it delays the investment of the second investor, or entrant. Second, the entrant will invest in less capacity. We also find that greater uncertainty makes entry deterrence more likely.
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