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Entrant Experience and Plant Exit

  • Mark Roberts
  • Shawn Klimek
  • Timothy Dunne

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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File URL: ftp://ftp2.census.gov/ces/wp/2004/CES-WP-04-12.pdf
File Function: First version, 2004
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 04-12.

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Length: 41 pages
Date of creation: Aug 2004
Date of revision:
Publication status: Published in International Journal of Industrial Organization
Handle: RePEc:cen:wpaper:04-12
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  1. J. Bradford Jensen & Andrew B Bernard, 2002. "The Deaths of Manufacturing Plants," Working Papers 02-15, Center for Economic Studies, U.S. Census Bureau.
  2. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University.
  3. 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.
  4. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2003. "Product Choice and Product Switching," Yale School of Management Working Papers ysm381, Yale School of Management.
  5. Baden-Fuller, Charles W F, 1989. "Exit from Declining Industries and the Case of Steel Castings," Economic Journal, Royal Economic Society, vol. 99(398), pages 949-61, December.
  6. Guimaraes, Paulo & Mata, José & Portugal, Pedro, 1995. "The Survival of New Plants: Start-up Conditions and Post-entry Evolution," CEPR Discussion Papers 1203, C.E.P.R. Discussion Papers.
  7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  8. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  9. Michael D. Whinston, 1988. "Exit with Multiplant Firms," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 568-588, Winter.
  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. 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.
  12. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  13. 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, vol. 59(2), pages 277-97, April.
  14. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, June.
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