Excess Capacity and Rationalisation in the West European Synthetic Fibre Industry

THIS paper examines the process of rationalisation in an international oligopoly confronted by persistent excess capacity and losses. In particular it analyses the pattern of capacity reduction, plant closures and product area withdrawals as the firms strove to restore their profitability. It compares the actual pattern of rationalisation achieved between 1975 and 1981 with the predicted patterns of rationalisation based on theory, both under a cartel with government intervention and in a competitive solution free from such intervention. The paper is divided into four sections. The first contains a brief outline of developments in the industry 1967-80. The second section examines the producer cartel and government intervention framework. The third section is devoted to the development of a predicted competitive pattern of rationalisation. Finally, the fourth section examines the actual pattern of rationalisation and compares this with both the cartel plus government intervention and the competitive pattern predictions.