overcapacity

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overcapacity

a situation in which a firm or industry has too much production CAPACITY on hand relative to current demand levels. This may be only temporary because of a downturn in the BUSINESS CYCLE. Alternatively, the decline in demand may be permanent (see PRODUCT LIFE CYCLE) or due to the industry having overinvested in new plant relative to long-run demand potential. In this case, overcapacity, leading to greater competition for limited sales is often removed by the disappearance of inefficient firms from the industry, or by RATIONALIZATION schemes involving the MERGER of firms and closure of redundant plant.

overcapacity

see EXCESS CAPACITY.
References in periodicals archive ?
Due to massive overcapacities, 60% of Chinas aluminium industrys production is loss-making.
Today, Chinas overproduction and overcapacities are undermining companies and destroying jobs around the world.
The impact of Chinese overcapacities is being felt in nearly every sector of European manufacturing from A, like Aluminium to Z, like Zero-Emission Technologies, points out Nitzschke.
Tremendous overcapacities have also been the subject of a recent analysis by Roland Berger on behalf of the European Chamber of Commerce in China, impressively confirming that the problem affects far more than the steel sector.
The move "has become inevitable due to the high EPS (expandable polystyrene) overcapacities in Asia Pacific that have developed in recent years.