IDEAS home Printed from https://ideas.repec.org/a/oup/qjecon/v105y1990i1p167-186..html
   My bibliography  Save this article

The Devolution of Declining Industries

Author

Listed:
  • Pankaj Ghemawat
  • Barry Nalebuff

Abstract

In declining industries capacity must be reduced in order to restore profitability. Who bears this burden? Where production is all or nothing, there is a unique subgame-perfect equilibrium: the largest firms exit first [Ghemawat and Nalebuff, 1985]. In this paper firms continuously adjust capacity. Again, there is a unique subgame-perfect equilibrium. All else equal, large firms reduce capacity first, and continue to do so until they shrink to the size of their formerly smaller rivals. Intuitively, bigger firms have lower marginal revenue and correspondingly greater incentives to reduce capacity. This prediction is supported by empirical findings.

Suggested Citation

  • Pankaj Ghemawat & Barry Nalebuff, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(1), pages 167-186.
    • Handle: RePEc:oup:qjecon:v:105:y:1990:i:1:p:167-186.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.2307/2937824
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:qjecon:v:105:y:1990:i:1:p:167-186.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/qje .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.