Overview

overcapacity


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The situation that arises when a firm or industry has greater capacity than the market demand. It may be caused by a temporary downturn in the economy or business cycle, overinvestment in capacity by existing or new entrants, or a permanent decline in demand for a product or service. In the last case, it is likely to be followed by restructuring throughout the industry, resulting in capacity being reduced through merger and closure in order to bring it into line with demand.

Subjects: Business and Management.


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