Investment sequencing in the brick industry: an application of grounded theory
* University of London and University of Essex, respectively
Address for correspondence: Andrew Wood, Department of Accounting, Finance and Management, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ; e-mail: wooda{at}essex.ac.uk.
Since the work of George Richardson on the problem of investment coordination, the literature has focused on explaining equilibrium in investment games and neglected the problem of how investments are coordinated. This paper reports the findings of a case study of the brick industry which used grounded theory techniques to develop a new analysis of investment coordination. Our main findings indicate that, despite the high cost of excess capacity and the very clear signalling of investment intentions, brick firms are reluctant to stand back and delay their own investments when a rival firm is expanding. The fact that for the most part excess investment is avoided is explained by reference to firms' heterogeneity and constraints to investment.
Key Words: Investment • Coordination • Constraints
JEL classifications: E22, L69
Manuscript received January 8, 2002; final version received September 12, 2003.