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Plant Closings and Exit Behaviour in Declining Industries

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  • Reynolds, Stanley S

Abstract

The plant closing and exit strategies of firms operating in a declining industry are examined. A dynamic, game-theoretic model is utilized. The perfectness criterion is used to restrict the set of Nash equilibria. There are two key equilibrium results. First, when firms have the same number of plants, high-cost plants close before lower-cost plants. Second, a larger firm (i.e., a firm operating more plants) begins closing plants before a smaller firm, as long as cost differences are not large. Copyright 1988 by The London School of Economics and Political Science.

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  • 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.
  • Handle: RePEc:bla:econom:v:55:y:1988:i:220:p:493-503
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    Cited by:

    1. Andrew B Bernard & J. Bradford Jensen, 2007. "Firm Structure, Multinationals, and Manufacturing Plant Deaths," The Review of Economics and Statistics, MIT Press, pages 193-204.
    2. Kolko, Jed & Neumark, David, 2010. "Does local business ownership insulate cities from economic shocks?," Journal of Urban Economics, Elsevier, vol. 67(1), pages 103-115, January.
    3. Chen, Ming-Yuan, 2002. "Survival duration of plants: Evidence from the US petroleum refining industry," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 517-555, April.
    4. Gamal Atallah, 2006. "Opportunity Costs, Competition, and Firm Selection," International Economic Journal, Taylor & Francis Journals, pages 409-430.
    5. Bichescu, Bogdan & Raturi, Amitabh, 2015. "The antecedents and consequences of plant closing announcements," International Journal of Production Economics, Elsevier, vol. 168(C), pages 197-210.
    6. John Sutton, 1996. "Gibrats Legacy," STICERD - Economics of Industry Papers 14, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Colombo, Massimo G. & Delmastro, Marco, 2001. "Technology use and plant closure1," Research Policy, Elsevier, vol. 30(1), pages 21-34, January.
    8. Andrew Eckert & Heather Eckert, 2014. "Regional Patterns in Gasoline Station Rationalization in Canada," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 99-122, March.
    9. Mata, Jose & Portugal, Pedro & Guimaraes, Paulo, 1995. "The survival of new plants: Start-up conditions and post-entry evolution," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 459-481, December.
    10. Arjen van Witteloostuijn, 1998. "Bridging Behavioral and Economic Theories of Decline: Organizational Inertia, Strategic Competition, and Chronic Failure," Management Science, INFORMS, vol. 44(4), pages 501-519, April.
    11. Amir, Rabah & Halmenschlager, Christine & Jin, Jim, 2011. "R&D-induced industry polarization and shake-outs," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 386-398, July.
    12. H. Van Kranenburg & F. Palm & G. Pfann, 2002. "Exit and Survival in a Concentrating Industry: The Case of Daily Newspapers in the Netherlands," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(3), pages 283-303, November.
    13. Kräkel, Matthias, 2010. "Shutdown Contests in Multi-Plant Firms and Governmental Intervention," IZA Discussion Papers 4852, Institute for the Study of Labor (IZA).
    14. Colombo, Massimo G. & Delmastro, Marco, 2000. "A note on the relation between size, ownership status and plant's closure: sunk costs vs. strategic size liability," Economics Letters, Elsevier, vol. 69(3), pages 421-427, December.
    15. John S. Heywood & Matthew Mcginty, 2007. "Convex Costs And The Merger Paradox Revisited," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 342-349, April.
    16. Colin Wren & Jonathan Jones, 2003. "Re-investment, Survival and the Embeddedness of Foreign-Owned Plants," ERSA conference papers ersa03p19, European Regional Science Association.
    17. Louri, Helen & Peppas, Costas & Tsionas, Efthymios, 2006. "Foreign presence, technical efficiency and firm survival in Greece: a simultaneous equation model with latent variables approach," MPRA Paper 29274, University Library of Munich, Germany.

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