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Shutdown Contests in Multi-Plant Firms and Governmental Intervention

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  • Kräkel, Matthias

    () (University of Bonn)

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4852.

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Length: 48 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4852

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Related research

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

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References

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  1. H. D. Watts & J. D. Kirkham, 1999. "Plant Closures by Multi-locational Firms: A Comparative Perspective," Regional Studies, Taylor and Francis Journals, vol. 33(5), pages 413-424.
  2. Wintrobe, Ronald & Breton, Albert, 1986. "Organizational Structure and Productivity," American Economic Review, American Economic Association, vol. 76(3), pages 530-38, June.
  3. Wolfstetter,Elmar, 2000. "Topics in Microeconomics," Cambridge Books, Cambridge University Press, number 9780521645348.
  4. S. Lael Brainard & David Martimort, 1992. "Strategic Trade Policy With Incompletely Informed Policymakers," NBER Working Papers 4069, National Bureau of Economic Research, Inc.
  5. Konrad, Kai A., 2000. "Trade contests," Journal of International Economics, Elsevier, vol. 51(2), pages 317-334, August.
  6. Reynolds, Stanley S, 1988. "Plant Closings and Exit Behaviour in Declining Industries," Economica, London School of Economics and Political Science, vol. 55(220), pages 493-503, November.
  7. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers 5020, National Bureau of Economic Research, Inc.
  8. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  9. Marvin B. Lieberman, 1990. "Exit from Declining Industries: "Shakeout" or "Stakeout"?," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 538-554, Winter.
  10. Brainard, S Lael, 1994. "Last One Out Wins: Trade Policy in an International Exit Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 151-72, February.
  11. Cassing, James H & Hillman, Arye L, 1986. "Shifting Comparative Advantage and Senescent Industry Collapse," American Economic Review, American Economic Association, vol. 76(3), pages 516-23, June.
  12. Anthony M. Marino & J�n Z�bojn�k, 2004. "Internal Competition for Corporate Resources and Incentives in Teams," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 710-727, Winter.
  13. Dragon, Robert & Garvey, Gerald T. & Turnbull, Geoffrey K., 1996. "A collective tournament," Economics Letters, Elsevier, vol. 50(2), pages 223-227, February.
  14. Michael D. Whinston, 1988. "Exit with Multiplant Firms," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 568-588, Winter.
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