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Entrant Experience and Plant Exit

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  • Timothy Dunne
  • Shawn D. Klimek
  • Mark J. Roberts

Abstract

Producers 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10133.

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Date of creation: Dec 2003
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Publication status: published as International Journal of Industrial Organization, Vol 23, Issue5-6, June 2005, pp. 399-421.
Handle: RePEc:nbr:nberwo:10133

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  1. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers, C.V. Starr Center for Applied Economics, New York University 86-33, C.V. Starr Center for Applied Economics, New York University.
  2. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2003. "Product choice and product switching," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3672, London School of Economics and Political Science, LSE Library.
  3. Guimaraes, Paulo & Mata, José & Portugal, Pedro, 1995. "The Survival of New Plants: Start-up Conditions and Post-entry Evolution," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1203, C.E.P.R. Discussion Papers.
  4. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
  5. Deily, Mary E, 1988. "Investment Activity and the Exit Decision," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 595-602, November.
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  7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 649-70, May.
  8. Andrew B. Bernard & J. Bradford Jensen, 2002. "The Deaths of Manufacturing Plants," NBER Working Papers 9026, National Bureau of Economic Research, Inc.
  9. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 671-98, November.
  10. Steven Klepper, 2002. "Firm Survival and the Evolution of Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 37-61, Spring.
  11. Michael D. Whinston, 1988. "Exit with Multiplant Firms," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 568-588, Winter.
  12. Das, Sanghamitra, 1992. "A Micro-econometric Model of Capital Utilization and Retirement: The Case of the U.S. Cement Industry," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(2), pages 277-97, April.
  13. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 1127-50, September.
  14. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262011468, December.
  15. Baden-Fuller, Charles W F, 1989. "Exit from Declining Industries and the Case of Steel Castings," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(398), pages 949-61, December.
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Cited by:
  1. T. Kirk White & Jerome P. Reiter & Amil Petrin, 2012. "Plant-level Productivity and Imputation of Missing Data in U.S. Census Manufacturing Data," NBER Working Papers 17816, National Bureau of Economic Research, Inc.
  2. Eliasson, Gunnar & Johansson, Dan & Taymaz, Erol, 2005. "Firm Tunrover and the Rate of Macroeconomic Growth - Simulating the Macroeconomic Effects of Schumpeterian Creative Destruction," Ratio Working Papers, The Ratio Institute 66, The Ratio Institute.

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