Capacity Arms Race & Scale Economy Trap

In commoditized markets, when a market leader uses government subsidies to dramatically expand production capacity to cement market share, competitors who respond with equivalent capacity expansion fall into a vicious cycle: larger scale → lower unit costs → fiercer price competition → thinner margins. The ultimate winner is not the player with the largest capacity, but the one with the most efficient cost structure or strongest differentiation.

Read the daily articles behind this idea on the Chinese edition.