Question: Polysilicon is used to produce computer chips and solar photovoltaics. Currently more polysilicon is used to produce computer chips, but the demand for ultrapure polysilicon for solar panels is rising. According to a 2006 Business Week article (John Carey, "What's Raining on Solar's Parade," Business Week, February 6, 2006, p. 78), this has created a shortage, and prices have more than doubled between 2004 and 2006.
a. High oil and energy prices, along with subsidies from U.S. and European governments for solar power, has increased demand, but suppliers are reluctant to build new factories or expand existing facilities, because they fear governments can easily eliminate incentives and at this point they do not know if solar energy is just a fad as one executive suggested, "governments can take away incentives as easily as they put them in place," and asked "is the solar industry real or just a flash in the pan?" Are these legitimate concerns for business?
b. Given the uncertainty associated with building additional production capacity in the polysilicon industry, what might these manufacturers do to reduce the risk?