The industry is adding new, more efficient capacity in the effort to reduce costs
Symptom: Improvements in product and process design have triggered the construction of new, more efficient capacity, at the same time that older facilities are being converted for more efficient use. At the same time, the industry has been consolidating. These events have reduced the industry's overall cost structure.
Implications for the market:
These improvements actually exacerbate industry overcapacity and hostility. Consolidation and resulting overhead reductions bring short-term relief for individual competitors but put additional cost pressure on the industry as a whole, forcing more consolidations and driving margins further downward.
These hostile competitive conditions can persist for years, until capacity growth slows and the industry is rescued by demand growth, or until only three or four key competitors control the overwhelming majority of the market and no longer discount against one another.
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Perspectives: Conclusions we have reached as a result of our long-term study and observations.