Why does government subsidy lead to excess capacity? From the two aspects of short-term unstable and long-term stable equilibrium, a game model is constructed to analyze the mechanisms of excess capacity led by three modes of government subsidy, such that production subsidies, establish subsidies and purchase subsidies.The theoretical analysis found that: (1) in the short run, the expansion of capacity caused by subsidies does not result in excess capacity in the industry; in the long run, as long as the intensity of subsidies is high enough to encourage new enterprises to enter, the industry will have excess capacity, and the greater the intensity of subsidies, the more serious the excess capacity in the industry.(2) The excess capacity of the industry caused by subsidies is the excess capacity of the existing old enterprises, while the capacity of the subsequent new enterprises is comfort capacity.(3) Under different subsidy intensity, capacity subsidy is more vulnerable than production subsidy and purchase subsidy in inducing overcapacity, but under the same subsidy intensity, the latter two are more serious than the former in inducing overcapacity.The actual cases show that the industry development effect and the excess capacity effect caused by the government subsidy practice are in good agreement with the theoretical analysis, that is, the theoretical framework of ours can reveal the mystery of the government subsidy of excess capacity.Based on the similarities and differences of the positive and negative effects of the three subsidy modes, this paper further proposes a specific plan to prevent excess capacity in advance in theory: (1) game tree can be used to choose the optimal subsidy strategy under different subsidy intensity, so as to make the subsidy policy greatly promote the development of the industry on the one hand, while avoiding excess capacity on the other hand. (2) We can use quantitative means to control the intensity of subsidies, so as to predict in advance the positive effects of government subsidies to promote industry development and the negative effects of excess capacity.
Key words
Excess capacity /
Government subsidy /
Production subsidy /
Establish subsidy /
Purchase subsidy
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