Competition-driven, government intervention and capacity expansion: an analysis on the micro-mechanism of “wave phenomenon”


BAI Rangrang


School of Management, Fudan University


The Chinese economy is facing huge pressure from the gross or structural overcapacity in many industries. This phenomenon cannot be totally attributed to the shock in business cycle fluctuation and expansive monetary or fiscal policy. It should also be analyzed from firms’ competition strategy in capacity investment and industrial organization policy. By the micro data from the Chinese passenger vehicle industry from 2000 to 2013, this paper analyzed the strategic motive of over 30 manufacturers’ capacity expansion behavior in the industry. This research found the following. (1) A firm’s increase of capacity investment has positive correlation with its competitors’ expansion behavior, which proves the existence of “wave phenomenon” or “bandwagon effect.” (2) No quite certain relationship exists of industrial capacity utilization rate and demand growth rate with new investment decisions. (3) The government’s investment restriction and control over automotive industry has achieved the expected goal in a certain period. Although “wave phenomenon” or “bandwagon effect” is supported by the econometric test of the Probit model, it is not proved that incumbents have distorted capacity expansion for market share maintenance or entry deterrence. Furthermore, the calculation of marginal effect on capacity expansion of joint ventures and native brands finds that capacity investment of the two kinds of manufacturers are motivated by obviously different factors.


capacity expansion;competition-driven;wave movement;industrial policies;automotive industry


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Total: 45 articles

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