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

Tetsuji Okazaki, Ken Onishi and Naoki Wakamori

No 18-005E, CIGS Working Paper Series from The Canon Institute for Global Studies

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 efficiency by accelerating the capital adjustment but may decrease 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 (i) did not increase market power because reduction in capacity resulted in higher utilization of the remaining plants, and (ii) did not distort firms' scrappage decisions.

Pages: 41
Date: 2018-12
New Economics Papers: this item is included in nep-com and nep-reg
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Related works:
Journal Article: EXCESS CAPACITY AND EFFECTIVENESS OF POLICY INTERVENTIONS: EVIDENCE FROM THE CEMENT INDUSTRY (2022)
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 (2017)
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