Excess Capacity and Effectiveness of Policy Interventions: Evidence from the Cement Industry

Tetsuji Okazaki, Ken Onishi and Naoki Wakamori
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Tetsuji Okazaki: Faculty of Economics, The University of Tokyo
Ken Onishi: School of Economics, Singapore Management University

No CIRJE-F-1073, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Strategic interaction among firms may hinder the reduction of excess capacity in a declining industry. Policy interventions that attempt to reduce excess capacity may increase efficiencyby accelerating the capital adjustment butmaydecrease efficiency by increasing the market power of firms and/or by distorting firms' divestment decisions. We study capacity coordination policies—forcing firms to reduce their capacity simultaneously—applied to the Japanese cement industry. Estimation results suggest that these interventions did not increase market power because reduction in capacity resulted in higher utilization of the remaining plants, and did not distort firms' scrappage decisions.

Pages: 49 pages
Date: 2017-12
New Economics Papers: this item is included in nep-com, nep-reg and nep-sea
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Related works:
Working Paper: Excess Capacity and Effectiveness of Policy Interventions: Evidence from the Cement Industry (2018)
Working Paper: Excess Capacity and Effectiveness of Policy Interventions: Evidence from the cement industry (2018)
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