Investment sequencing in the brick industry: An application of grounded theory

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.