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Excess Capacity and Effectiveness of Policy Interventions: Evidence from the cement industry

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  • OKAZAKI Tetsuji
  • ONISHI Ken
  • WAKAMORI Naoki

Abstract

Excess production capacity has been a major concern in many countries, in particular, when an industry faces declining demand. Strategic interaction among firms might delay efficient scrappages of production capacity, and policy interventions that eliminate such strategic incentives may improve efficiency. This paper empirically studies the effectiveness of policy interventions in such environment, using plant-level data on the Japanese cement industry. Our estimation results show that a capacity coordination policy that forces firms to reduce their excessive production capacity simultaneously can effectively reduce excess capacity without distorting firms' scrappage decisions or increasing the market power of the firms.

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  • OKAZAKI Tetsuji & ONISHI Ken & WAKAMORI Naoki, 2018. "Excess Capacity and Effectiveness of Policy Interventions: Evidence from the cement industry," Discussion papers 18012, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:18012
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    2. Xindi Xu & Qinyun Wang & Haichao Hu & Xinjun Wang, 2021. "Air Pollution Control: An Analysis of China’s Industrial Off-Peak Production Policy through the Quasi-Natural Experiment Method," Sustainability, MDPI, vol. 13(9), pages 1-18, April.

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