Excess capacity as a barrier to entry in the US titanium industry

Abstract

The purpose of this paper is to construct and empirically test a model designed to determine the impact, if any, of expected excess capacity on the probability of entry. The analysis is conducted within the context of a single oligopoly, specifically, the US titanium metal industry. Using time-series data, an empirical model is developed and estimated in order to determine expected values of the components of excess capacity: capacity and production. By disentangling the components of excess capacity and estimating them separately, it is possible to separate any incumbent actions that may preempt entry from the effects of underlying cycles in demand and production. These predicted values are utilized in a logit model, generating results which indicate that expected levels of capacity expansion appear to diminish the probability of firm entry into the titanium industry.