Abstract
When multi-plant firms face a declining demand, they typically have to close one or more locations. In that case, the firm can organize a shutdown contest among the plants to generate extra incentives. Within a two-plant model, I discuss the impact of plant size, workers’ outside options and bargaining power on the profitability of such contest. Whereas the influence of plant size is ambiguous, the firm prefers a shutdown contest to an immediate closure of the less productive location if the more productive plant’s bargaining power is large relative to that of the less productive one. In that case, the more productive workforce spends much effort and has a high probability to survive. If the multi-plant firm is an international corporation, auctioning off the decision right which plant to close can be profitable for the firm, since each country is interested in protecting its domestic plant. From the firm’s perspective, such bidding dominates a shutdown contest if national costs from plant closure are sufficiently large relative to extra profits generated by the contest.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.