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Capital Commitment and Profitability: An Empirical Investigation

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  • Ghemawat, Pankaj
  • Caves, Richard E

Abstract

Opportunities to precommit costs can either i ncrease the rents of incumbent firms (by deterring entry), or decrease them (thr ough commitment races and lapses into noncooperation). Authors seek to discrimin ate statistically between these predictions in the determinants of profits of bu sinesses in a cross-section of concentrated markets for producer nondurables. Ov erall, a business'sprofitability declines with its industry's scope for precomm itting production capacity (sunk costs). However, variables interacted with the scope for commitment do not point clearly toward one or the othermechanism. The refore, commitment opportunities seem likely to lead to deterrence and noncooper ative rivalry in proportions that differ idiosyncratically among markets. Copyright 1986 by Royal Economic Society.

Suggested Citation

  • Ghemawat, Pankaj & Caves, Richard E, 1986. "Capital Commitment and Profitability: An Empirical Investigation," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 94-110, Suppl. No.
    • Handle: RePEc:oup:oxecpp:v:38:y:1986:i:0:p:94-110
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    Cited by:

    1. Chien-Nan Chen & Chengli Tien & Bernard Gan, 2019. "The postentry performance of business groups’ new venture affiliates," Australian Journal of Management, Australian School of Business, vol. 44(2), pages 325-343, May.
    2. Sanjib Bhuyan, 2002. "Impact of Vertical Mergers on Industry Profitability: An Empirical Evaluation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(1), pages 61-79, February.
    3. Shaanan, Joseph, 1997. "Idle sunk cost capacity, entry, and profitability: An empirical study," Journal of Economics and Business, Elsevier, vol. 49(3), pages 267-283.
    4. Muhammad Azeem Qureshi & Fred H. Strønen & Marius Tyseng & Marius Urdal, 2020. "Sustainable Business in Norway: The Firm or the Industry Effect?," Sustainability, MDPI, vol. 12(8), pages 1-13, April.
    5. Kounetas, Kostas & Tsekouras, Kostas, 2008. "The energy efficiency paradox revisited through a partial observability approach," Energy Economics, Elsevier, vol. 30(5), pages 2517-2536, September.
    6. Jan W. Rivkin, 2001. "Reproducing Knowledge: Replication Without Imitation at Moderate Complexity," Organization Science, INFORMS, vol. 12(3), pages 274-293, June.
    7. Alan K.M. Au & Matthew C.H. Yeung, 2013. "Consumer Satisfaction and Profitability: A Dynamic Panel Data Analysis," Journal of Business Administration Research, Journal of Business Administration Research, Sciedu Press, vol. 2(2), pages 54-60, October.
    8. Eric Van den Steen, 2017. "A Formal Theory of Strategy," Management Science, INFORMS, vol. 63(8), pages 2616-2636, August.
    9. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    10. Buzzell, Robert D., 2004. "The PIMS program of strategy research: A retrospective appraisal," Journal of Business Research, Elsevier, vol. 57(5), pages 478-483, May.
    11. Bhuyan, Sanjib, 2001. "Impact Of Vertical Mergers On Food Industry Profitability: An Empirical Evaluation," 2001 Annual meeting, August 5-8, Chicago, IL 20469, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Fernández Olmos, Marta, 2010. "The performance implications of "grow or buy" decisions in the wine industry," Food Policy, Elsevier, vol. 35(3), pages 256-264, June.
    13. Kounetas, Konstantinos & Mourtos, Ioannis & Tsekouras, Konstantinos, 2012. "Is energy intensity important for the productivity growth of EET adopters?," Energy Economics, Elsevier, vol. 34(4), pages 930-941.

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