Abstract
Capacity is the maximum short-run output with capital in place under normal operations, and capital investment increases capacity. Excess capacity can be used as entry deterrence by lowering average costs over a greater range of output, and as an operations strategy by providing value through flexibility to manage demand fluctuations and production disturbances. We study the way that information technology (IT) can contribute to a strategy of holding excess capacity by comparing the relationship between IT capital and capacity with that of non-IT capital and capacity. We find that increases in IT capital yield almost fourfold greater expansion in capacity than do increases in non-IT capital. Thus, as both types of capital are constraints on capacity, for a strategy of holding excess capacity, IT capital is a more valuable constraint to relax than non-IT capital. In addition, since the late 1990s, IT capital and, to a lesser extent, non-IT capital have reduced capacity utilization (output divided by capacity), meaning increasing levels of excess capacity are being held across manufacturing industries and utilities across the economy.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.