Plant Closings and Exit Behaviour in Declining Industries

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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