Exit from Declining Industries: "Shakeout" or "Stakeout"

By Marvin B. Lieberman
1989| Working Paper No. 1043

Data on thirty declining chemical products are used to test theories of exit. The results offer support for two different models. The first model predicts that small firms would be most likely to exit. The second model predicts that large producers would make disproportionate cuts in capacity. The fact that both models are supported suggests that the sequence of capacity reductions in a declining industry depends on inter-firm differences in both revenue and cost.