Entrant Experience and Plant Exit
AbstractProducers entering a market can differ widely in their prior production experience, ranging from none to extensive experience in related geographic or product markets. In this paper, we quantify the nature of prior plant and firm experience for entrants into a market and measure its effect on the plant’s decision to exit the market. Using plant-level data for seven regional manufacturing industries in the U.S., we find that a producer’s experience at the time it enters a market plays an important role in the subsequent exit decision, affecting both the overall probability of exit and the method of exit. After controlling for observable plant and market profit determinants, there remain systematic differences in failure patterns across three groups of plants distinguished by their prior experience: de novo entrants, experienced plants that enter by diversifying their product mix, and new plants owned by experienced firms. The results indicate that the exit decision cannot be treated as determined solely by current and future plant, firm, and market conditions, but that the plant’s history plays an important independent role in conditioning the likelihood of survival.
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Bibliographic InfoPaper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 04-12.
Length: 41 pages
Date of creation: Aug 2004
Date of revision:
Publication status: Published in International Journal of Industrial Organization
Other versions of this item:
- L0 - Industrial Organization - - General
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L6 - Industrial Organization - - Industry Studies: Manufacturing
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