Excess Capacity and Market Structure
STUDIES investigating the relationship between market structure and market performance generally focus on allocative efficiency and progressivity. Almost no empirical analysis exists which examines the relationship-between market structure and another important dimension of market performance -the degree to which industries experience excess capacity.1 Of the three empirical studies dealing with the relationship between market structure and excess capacity (Bain, 1962; Meehan, 1967; Scherer, 1969), only Bain's directly relates the degree of excess capacity to market structure.2 However, given the small sample employed, Bain's observation that excess capacity did not appear in his six substantial or very high barriers sample industries and did appear in his three moderate to low barriers industries, generates only tentative conclusions with respect to the relationship between excess capacity and barriers to entry. This paper employs multiple regression analysis and investigates the quantitative relationship between market structure and a direct measure of excess capacity for 35 American manufacturing industries. In order to capture chronic excess capacity, the dependent variable is measured over a period of rising aggregate demand, 1963-1966. The results suggest that partial oligopolies experience significantly more excess capacity during periods of growing aggregate demand than do tight oligopolistic or atomistic industries. Section I of this paper has a discussion of the various hypotheses linking market structure and excess capacity. Section II describes the model and presents the major empirical results. Section III discusses the implications of the empirical results with respect to antitrust policy.
- DOI
- 10.2307/1924438
- Volume
- 56 (2)
- Pages
- 188
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