Book contents
5 - Empirical evidence
Exit from declining industries: ‘shakeout’ or ‘stakeout’?
Published online by Cambridge University Press: 21 September 2009
Summary
Introduction
In a declining industry, who exits first: large firms or small? If capacity can be reduced incrementally, who makes the largest or most frequent cuts? Do firm sizes tend to converge or diverge, and does concentration rise or fall? Indeed can such generalizations be made, or does the pattern of divestment vary too greatly from one declining industry to another?
Several recent theoretical studies have addressed these issues of competition during decline. While they offer a number of predictions, verification has thus far been limited to interpretations drawn from a handful of industry case examples. This contribution evaluates the recent theories in the more rigorous context of a data sample covering 30 chemical products that have been declining for periods ranging from five to twenty-five years. The sample is large enough to allow statistical testing of hypotheses about the divestment process in declining commodity product industries.
The analysis is framed in terms of two contrasting sets of predictions. The first set of predictions is based on the observation that larger firms are often more efficient: size may convey economies of scale or reflect a process of more rapid growth by superior firms. Such differences in efficiency would cause smaller producers to be ‘shaken out’ relatively early if prices fall during the decline phase.
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- Applied Industrial Economics , pp. 98 - 120Publisher: Cambridge University PressPrint publication year: 1998