Julie Hunsacker and Dan Kovenock

"The pattern of exit from declining industries"

JEL codes: D43, L13
Keywords: exit, oligopoly

Abstract: This paper examines the exit decisions of firms in a declining industry. We model duopolists with asymmetric capacities in an environment where exist is an “all-or-nothing” decision. By allowing firms to produce with excess capacity and admitting cost asymmetries, we demonstrate that the order of exit depends on the firms’ cost structures, the path of demand decline, and the nature of competition. Contrary to existing literature, the small firm may exist the market first even with arbitrarily small cost asymmetry. We also show that for a range of cost parameters the large firm exists first under Cournot competition while the small firm exits first under Bertrand-Edgeworth competition.