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Authors: Jim Billington
Published by: Harvard Business Publishing
Published in: "Harvard Management Update", 1998

Abstract

Chronic overcapacity is prevalent in both the automotive and health care industries. These two industries demonstrate that capacity is not always a simple economic question of supply and demand--often, various noneconomic factors, the lack of normal market forces, and deliberate business decisions play significant roles. This article first examines the differences between cyclical or episodic overcapacity and chronic or structural capacity, then, using examples from the health care and auto industries, offers guidance for managers who must deal with this issue.

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Abstract

Chronic overcapacity is prevalent in both the automotive and health care industries. These two industries demonstrate that capacity is not always a simple economic question of supply and demand--often, various noneconomic factors, the lack of normal market forces, and deliberate business decisions play significant roles. This article first examines the differences between cyclical or episodic overcapacity and chronic or structural capacity, then, using examples from the health care and auto industries, offers guidance for managers who must deal with this issue.

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