Exit
Pankaj Ghemawat and
Barry Nalebuff
RAND Journal of Economics, 1985, vol. 16, issue 2, 184-194
Abstract:
In a declining industry, shrinking demand creates pressure for capacity to be reduced. Who exits first? There is a unique perfect equilibrium for firms with asymmetric market shares and identical unit costs in which survivability is inversely related to size: the largest firm can profitably "hang on" longer than a large firm. Sufficiently strong scale economies can, by conferring cost advantages on large firms, reverse this outcome. Numerical examples, however, suggest that the required cost advantage for large firms to outlast smaller ones may be surprisingly substantial.
Date: 1985
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