Exit with Multiplant Firms

Michael Whinston

RAND Journal of Economics, 1988, vol. 19, issue 4, 568-588

Abstract: Using an extension of Ghemawat and Nalebuff's (1985) model, I analyze the outcome of industry decline when firms have multiplant operations. The analysis reveals that no natural generalization of their strong empirical prediction, that the larger of two single-plant duopolists exits first, holds in a multiplant setting. The results also highlight a number of factors that affect the pattern of capacity removal during industry decline and lead to a discussion of the strategic implications of firms' plant size choices. In general, the factors determining the pattern of capacity reduction can be quite complex, and prediction in such settings often requires intimate knowledge of industry structure.

Date: 1988
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