China’s higher education is facing a structural excess capacity crisis. Duopoly models that consist of two universities are constructed in attempt to investigate the impacts of demand price elasticity, product differentiation, subsidies, and cost efficiency on excess capacity. In doing so, it turns out that the ownership of capacity decision power in higher education will exert an effect on the extent of excess capacity and the impact on the product differentiation on excess capacity. The higher the subsidies granted to universities or the lower the cost, the more the excess capacity in one university, but the less in the other university. When universities have the capacity decision power, the demand price elasticity and excess capacity constitute a Type U relationship. While the government owns the capacity decision power, both are positively correlated to each other. These conclusions have a certain realistic significance for the higher education reform in China.