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Shutdown Contests in Multi-Plant Firms and Governmental Intervention

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  • Matthias Kräkel

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    Abstract

    When a multi-plant firm must close one unit due to declining demand it can choose between two alternatives. On the one hand, the firm can announce a certain span of time in which the plants are evaluated according to relative performance with the least performing plant being shut down in the end (shutdown contest). On the other hand, the firm can use given information on the plants' productivities and close the least productive unit. This paper analyzes the selection and incentive properties of both alternatives. Multi-plant firms often operate in an international industry. Hence, in a second step we discuss the effects of governmental support for domestic plants on selection efficiency.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse03_2010.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse03_2010.

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    Length: 46
    Date of creation: Mar 2010
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse03_2010

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de/index.php?id=494

    Related research

    Keywords: auction; collective tournament; plant closing; governmental intervention;

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