Entry Prevention Through Strategic Capacity Expansion And Pricing

Abstract

In this paper, market and cost data from the titanium dioxide industry are used to analyze firm limit pricing.  One firm in that industry had a cost-reducing technological advantage over all others.  By strategically expanding its own capacity, this firm could have established an equilibrium market price – or limit price – that would have prevented its rivals from expanding.  The method of achieving this goal and the method’s feasibility are discussed.