Exit from regional manufacturing markets: The role of entrant experience

Producers entering a market can differ widely in their prior production experience, ranging from none to extensive experience in related geographic or product markets. In this paper, we quantify the nature of prior plant and firm experience for entrants into a market and measure its effect on the subsequent decision to exit the market. Using plant-level data for seven regional manufacturing industries in the U.S., we find that a producer's experience at the time it enters a market plays an important role in the exit decision, affecting both the overall probability of exit and the method of exit. After controlling for observable plant and market variables that affect profits, there remain systematic differences in exit patterns across three groups of plants distinguished by their prior experience: de novo entrants, experienced plants that enter by diversifying their product mix, and new plants owned by experienced firms. The results indicate that the exit decision cannot be treated as determined solely by current and future plant, firm, and market conditions, but that the plant's history also plays an important independent role in conditioning the likelihood of survival.